CPO futures may test overhead resistance level

OBSERVATIONS: The flare-up in political tensions in the Middle East, as well as estimates of a record high for exports of palm oil in December 2008, put a burner under the Kuala Lumpur CPO futures market last week.

Fired-up market players pushed the actively-traded March 2008 contract to an intra-week high of RM1,748. The contract settled last Friday at RM1,740 a tonne, up RM150 or 9.43 per cent over the week.

Swiss export monitor Societe Generale de Surveillance got this market off to a flying start early last week with its record-high estimate of 1.64 million tonnes of palm oil exports for December 2008.

The estimate is 22 per cent above the amount of palm oil shipped out in November 2008 and sparked speculation that end-December 2008 stocks could decline by a substantial amount from the end-November 2008 record-high stocks of 2,265,754 tonnes.

The amount for end-December 2008 stocks will only be known next week, when the Malaysian Palm Oil Board unveils its trade report for December production, exports and end-month stock figure. Meantime market players will be kept on tenterhooks this week by speculation over the amount of the end-December 2008 stock figure.

The sudden jump in the crude oil price above US$40 (US$1 = RM3.46) a barrel, in the wake of Israel’s military operations in Gaza, also was a factor behind the price surge in the local market. Light sweet crude for February 2009 delivery on the New York Mercantile Exchange leaped US$8.63 or 22.90 per cent, settling last Friday at US$46.34 a barrel.

Conclusion: This market will likely make an attempt in early trade this week to test the RM1,775 long-term overhead resistance level. However, whether it can successfully and decisively make a break-out above that resistance is in doubt at this time because of the technical overbought position of this market.

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