Monday August 18, 2008

Crude palm oil sank to 12-month low on massive selling last week

by G.M. Teoh

CRUDE PALM OIL

Crude palm oil futures on Bursa Malaysia Derivatives sank and closed at a 12-month low following massive stale bull-liquidation and commercial hedge selling.

Bearish news that China had defaulted on 40,000 tonnes of RBD palm olein and expectation of a further 100,000 tonnes of oil to be washed out by importers following the recent market plunge, added fuel to the bearish sentiment.

Faltering crude oil prices, huge losses in the Chicago Board of Trade (CBOT) soyoil futures and news that the world’s largest CPO producer Indonesia would not reduce its 20% export tax on palm oil, contributed to the sell-off.

Positive palm oil exports for the first 15 days of August failed to stimulate the market. Societe Generale de Surveillance (SGS) estimated exports for the first half of August were 32.6% higher at 643,324 tonnes compared with 485,181 tonnes in the preceding month.

The October futures prices plunged from an intra-week high of RM2,728 and hit a 12-month low at RM2,393. Prices then rebounded slightly to settle the week sharply lower at RM2,453, down a hefty RM326 a tonne from a week earlier.

Volume for the week jumped to 76,879 from 61,633 contracts the week before. Open-interests at Thursday’s close fell marginally to 53,273 from 53,448 contracts.

The daily candlestick chart remained bearish for main trend and showed the negative momentum would persist. Five black candles were formed last week and the steep downward pattern suggests the overall trend would stay bearish.

The market is still in a bearish phase and based strictly on technical reading, the worst may not be over yet.

So far, the market has returned RM2,093 or 46.66% of its bull-run peak of RM4,486 a tonne.

It is interesting to note that the market fell sharply before the emergence of all the bearish news last week. It appears that large players or the smart money might have sold ahead of the bad news and are now buying back short positions.

In commodities, it is always “sell on rumours and buy on facts” when the rumours are generally negative in nature.

The technical rebound from the current levels can be very strong because most of the technical indicators are signalling an overdone situation. Short-covering and speculative buying would easily lift the market higher. We shall have to wait and see.

Chart support for the October futures is now pegged at the RM2,380–RM2,330 levels. Violation of this most recent decline low would mark the resumption of the bearish trend and pressure values lower to RM2,300–RM2,200.

Resistance for this week is seen at the RM2,500–RM2,550 levels. An upward breakout from these levels would set the market on a recovery phase and re-test the RM2,600–RM2,650 levels.

The daily technical indicators remained mostly bearish at Friday’s close and signalled the market may be technically oversold following last week’s excessive losses.

The daily stochastic remained positive at Friday’s close and confirmed the grossly oversold condition of the market. The oscillators per cent K and D settled lower in the bearish extended-move zones at 19.49% and 13.02% respectively and signalled the immediate underlying momentum of the market is neutral to slightly positive.

The main trend-tracker, the 3- and 7-day ESA-lines, expanded on its six-week-old sell signal last week and settled Friday in bearish divergence. Analysis of the ESA-lines shows the main trend of the market is still bearish.

The 5-day RSI trended south and closed in the negative territory at 20.22 points. Analysis of the daily RSI indicates the market is oversold position and the underlying strength of the market is still bearish.

This entry was posted on Monday, August 18th, 2008 at 11:34 am and is filed under Crude Palm Oil Futures. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.