CPO futures still in consolidation mode

OBSERVATIONS: The Kuala Lumpur CPO futures market perk up last week, more than anything else a function of the 13 per cent spurt in the price of crude oil above US$44 a barrel. Although the scuttlebutt making the market rounds has it that end-February 2009 stocks of palm oil would fall by around 5 to 6 per cent market players were not so sure.

The lack of conviction on improvement to the crop’s fundamentals — and the near term direction of prices — was reflected in the many failed attempts to make a breakout above the psychological RM1.900 a tonne level. But even if this market had managed to break out above RM1,900 it still would have needed to clear the RM1,970 short-term overhead resistance level to be considered as well and truly back on the bull track.

Because the end-February 2009 palm oil stock figure will only be known on March 10, much of where this market is headed in the interim depends on crude oil — and perhaps the February 2009 palm oil export estimates, which should be public knowledge today.

Temperatures rose in crude oil markets last week, on signs of a a recovery in US energy demand. The heat from there was transmitted to world commodity markets as a whole, the Kuala Lumpur CPO futures market included. Low petrol prices, it appears, are luring US motorists back to the roads, as indicated by the drop of 3.4 million barrels in US petrol inventories last week.

The actively-traded May 2009 contract was traded to a high of RM1,930, but settled last Friday at RM1,895 a tonne, up RM60 or 3.27 per cent over the week.

Conclusion: Because of the many imponderables, and some mixed technical signals, there really is no telling where this market is headed in the near term except that it should remain in consolidation mode.

However, because this market is still technically a short-term bear, a good bet would be a short sell when this market starts to turn down after having gone up into technical overbought territory.

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