Monday, March 15, 2010

CPO futures --Test for RM2,630 support level

OBSERVATIONS: The RM2,700 to RM2,725 a tonne area has become a zone of fear - fear that long (buy) positions entered into within that zone would be money-losing propositions.

That's because that's the area where, last week, not only many dreams of riches have turned to dust, many market players suffered heavy losses to boot!

The problem was because, try as as it did, this market just could not breach the long-term RM2,725 overhead resistance level.

And it was not for want for trying. This market made passes, for four consecutive days (Monday through Thursday), above the RM2,700 level. But although it kept plugging away it got stonewalled in every attempt it made to breach the RM2,725 resistance level.

Market bulls, exhausted and frustrated by the end of last week, changed tack last Friday, attempted to nail down profits by liquidating long contracts and pocketing whatever profits were still available for the taking. In the event the May 2010 contract slumped, settling at RM2,649 for a RM21 or 0.79 per cent loss over the week.

What happened is that the RM2,725 overhead resistance level has become even more resistant - maybe even super resistant - to future attempts at rallies to stage breakouts above that level.

The unfortunate part - for the bulls - was that the many failtures to breach that overhead resistance were not for want of encouraging news and positive develoments.

The latest March -10 combined export estimates from Societe Generale de Surveillance and Intertek Agri Services averaged 450,000 tonnes, up 59,000 tonnes or 15.61 per cent compared to that for the corresponding period in February.

And the Malaysian Palm Oil Board put end-February 2010 stocks at 1,785,333 tonnes, which not only was lower by some 218,000 tonnes or 10.90 per cent from that at the end of January 2010 but also the lowest stocks have been since September 2009, when stocks were figured at 1,579,252 tonnes.

Conclusion: This market will, in all probability, fall in early trade this week to test the RM2,630 immediate support level.

A decisive breakdown below that support level will mark not only the end to the February through early March RM2,400-RM2,720 short-term bull run, it also will signal the start to a new short-term bear phase.


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