More positive but not a bull CPO futures mart yet

OBSERVATIONS: A raft of positive factors - China's steepest interest rate cut in 11 years to bolster economic growth; the strong jumps in crude oil and soyabean oil futures; flooding in some palm oil growing areas; and a good export performance last month - gave a shot in the arm to investor sentiment on the Kuala Lumpur CPO futures market last week.

Prices shot up, at one point surging above the RM1,670 short-term overhead resistance level. However, profit-taking ahead of the weekend trimmed the earlier gains and this market, basis the actively-traded February 2009 contract, settled last Friday at RM1,632 a tonne, up RM172 or 11.78 per cent over the week but still within the confines of its RM1,390- RM1,670 consolidation mode parameters.

Because some of last week's positive factors remain as strong underpinning factors, this market could well make another stab at a breakout above the immediate RM1,670 resistance level this week.

One strong positive that remains in place is a seasonal factor: the North-East Monsoon. The October through February North-East Monsoon not only floods the palm oil growing areas in Peninsular Malaysia but also is a hindrance to harvesting.

Another positive is the strong export performance in November (up to the time for which data are available) which could shave off some the deadweight of end-October record high stocks amounting to 2,086,452 tonnes. Swiss export monitor Societe Generale de Surveillance put November 1-25 exports at 1,087,865 tonnes, up 115,095 tonnes or 11.83 per cent compared to the export figure for the corresponding period in October.

Conclusion:

This market will first have to decisively overcome the immediate RM1,670 level if it is to make any more headway on the upside. And even if it manages a breakout above that immediate resistance level it still will have to overcome the RM1,775 long-term overhead resistance level before it can be considered a bull - once again.

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.com