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 Mahamad Rodzi Abdul Ghani
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 Forecasting Price Trends

CPO may be in for downward correctionMonday, July 16, 2001(The Star)- CRUDE PALM OIL (CPO) futures prices onthe Malaysia Derivatives Exchange (MDEX) skyrocketed last week as tradersscrambled in panic buying and forced prices briefly to the RM1,200 pertonne level the highest seen since April 25 last year.China's decision on palm oil import quota for the rest of this year at700,000 tonnes and sharply higher soyoil prices sparked the bullish rallyand caused many local refiners and speculative shorts to square-offearlier positions.The market has anticipated and reacted to the positive news from China,and the big question confronting traders this week is, would the bullishrally continue or would the market decide to sell-on-facts now that theChina factor has been discounted?

Friday's sharp technical pullback, where the September contracts retracedfrom their daily high of RM1,200 to a daily low of RM1,050 and then closedat RM1,080, signalled that a large portion of the weak short positionholders who caused the recent excessive gains have already been flushedout of the market during the latest run-up.Unless fresh aggressive speculative and hedge buying develops this weekthe market would find it difficult to hold on to its recent excessivegains.The September futures prices surged from a week's low of RM915 to RM1,200and ended the week off their intraweek high of RM1,080, up a hefty RM163per tonne from a week ago.

Based on chart, the September futures prices have indicated the market hasentered a technical key reversal pattern and would likely stay underselling pressure this week.Chart support for this week stands at the RM1,020 RM1,040 levels, and asuccessful break below this important bullish rallysupport would signalthat a meaningful technical pullback has started.Minor support for this week is pegged at the RM1,000 RM980 levels. Chartresistance is seen at RM1,090 RM1,120.The 12-day exponentially smoothed moving-average price line (ESA) closedFriday bullish and settled sharply higher at RM951. Based strictly on theESA-lines, the market's upward cycle is still intact.Technically, the daily stochastics slipped out of the bullishextended-move zones and triggered the sell signal at Friday's close. Theoscillator per cent K finished below the oscillator per cent D and endedlower at 75.78% and 86.83% respectively.Analysis of the stochastics shows the bullish momentum has ended andcalled for a downward correction this week.The daily Momentum Index (MI) remained in uptrend and ended above the100-point mark at 126.50 points.The MI continues to indicate that the market's main trend is bullish.The Moving-Average Convergence/Divergence (MACD) expanded on its bullishsignal and suggested the near-term trend is constructive.The MACD and the trigger-line settled the week higher at 55.42 and 47.92points respectively.

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