CPO futures' technical rebound still in progress

Published: 2009/09/28

OBSERVATIONS: External factors and events weighed on the Kuala Lumpur CPO futures market at first, but a much improved - indeed, a much better-than-expected - export performance saved the day for the local market.

The actively-traded December 2009 dropped to intra-week low of RM2,089 but strong buying interest emerged at the eleventh hour, giving this market a strong lift. Settling last Friday at RM2,186 a tonne, the benchmark contract closed almost unchanged from the previous week, down a mere RM4 over the week.

Strength in the US dollar early last week was the catalyst that sent crude oil plunging below US$70 a barrel, and which chilled commodity markets overall.

World edible oil markets also came under downside pressure due to expectations for a bumper US soyabean crop. US soyabeans are harvested from October through November and weather conditions are said to be perfect. US soyabean oil for October delivery on the Chicago Board of Trade closed last Friday at 34.68 US cents a pound, down 64 points or 1.85 per cent over the week.

India's soyabean crop was also reported to be doing well, putting further downside pressure on other vegetables oils, palm oil included.

But it was the latest - and much better-than-expected - export estimates that came to the market's rescue. Intertek Agri Services put September 1-25 exports at 963,814 tonnes. Though still lower by some 37,000 tons or 3.70 per cent compared to that shipped out in the corresponding period in August, it was a major improvement compared to the earlier September 1-15 export estimate, which was 135,000 tonnes lower compared to that for first half August 2009.

Conclusion: The technical indicators overall, as of last Friday, suggests that the technical rebound is still on.

What's more, last Friday's trading action drew a bullish engulfing pattern on the chart, a bullish candlestick signal.

HOW TO USE THE CHARTS AND INDICATORS

THE BAR AND VOLUME CHART: This is the daily high, low and settlement prices of the most actively traded basis month of the crude palm oil futures contract. Basically, rising prices accompanied by rising volumes would indicate a bull market.

THE MOMENTUM INDEX: This line plots the short/medium-term direction of the market and may be interpreted as follows:
(a) The market is in an upward direction when the line closes above the neutral straight line and is in a downward direction when the reverse is the case.
(b) A loss in the momentum of the line (divergence) when prices are still heading up or down normally indicates that the market could expect a technical correction or a reversal in the near future.

THE RELATIVE STRENGTH INDEX: This indicator is most useful when plotted in conjunction with a daily bar chart and may be interpreted as follows:
(a) Overbought and oversold positions are indicated when the index goes above or below the upper and lower dotted lines.
(b) Support and resistance often show up clearly before becoming apparent on the bar chart.
(c) Divergence between the index and price action on the chart is a very strong indication that a market turning point is imminent.

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.

The writer welcomes comments and feedback. He can be reached at mavernwqmun@gmail.comm