CPO futures sharply higher

Strong rebound in crude oil and soyoil futures provide bullish steam

Forecasting Price Trends: A weekly column by G.M. Teoh on Crude Palm Oil, Soyoil, Cocoa and Cash TinForecasting Price Trends: A weekly column by G.M. Teoh on Crude Palm Oil, Soyoil, Cocoa and Cash Tin

CRUDE PALM OIL

CRUDE palm oil futures traded on the Bursa Malaysia Derivatives (BMD) ended the week sharply higher after rebounding from an earlier sell-down that took prices to a 3¾-year low.

Prices initially plunged on an aggressive wave of selling following news that Indonesia, the world’s largest crude palm oil producer, had lifted the export tax on palm oil until the end of this year. Earlier, Indonesia set a 2.5% export tax for palm oil exports for November, down from 7.5% tax in October.

Sharp losses in crude oil prices and huge declines in the Chicago Board of Trade soyoil futures also contributed to the bearish setting.

A strong rebound in both crude oil and soyoil futures prices in late week trading provided the bullish steam to the run-up in crude palm oil futures.

Moderately higher exports for the month of October prompted traders to cover some of their earlier short positions. Societe Generale de Surveillance (SGS) estimated palm oil exports for October higher by 5.6% to 1.227 million tonnes from 1.209 million tonnes a month earlier.

The January futures prices rebounded from a weekly-low of RM1,331 to an intra-week high of RM1,578 and then eased in a late round of selling to settle Friday sharply higher at RM1,515, up RM125 a tonne from a week ago.

Total volume for the week declined sharply to 58,629 contracts from 67,244 contracts a week ago. Total open interest as at Thursday’s close jumped to 90,371 contracts or 2.26 million tonnes from 81,762 contracts from previously.

There were four white candles in the shortened four-day trading last week. Although those four white candles were small, the steady upward pattern suggests that the underlying strength of the market is strong.

For this week, the January futures have an important chart support at the RM1,475 to RM1,450 level.

The recovery bounce would resume if this level is not breached.

Minor chart support stands at the RM1,400 to RM1,375 level. The bearish trend would expand if the minor support is violated.

An immediate overhead hurdle is seen for the January futures at the RM1,550 to RM1,575 level. Penetration of this level would bring on fresh technical buying and lift values higher to test its minor chart resistance at the RM1,650 to RM1,675 level.

The daily technical indicators ended the week mostly positive and indicated that the market is in a bottoming out process following its fall to fresh decline lows last week.

The daily stochastic gave the buy signal on Oct 28 and held on to its positive call on Friday’s close.

The oscillators per cent K and D finished the week sharply higher at 64.51% and 46.35% respectively. Based on the daily stochastic, the market may continue with its upward technical correction.

SOYBEAN

US soyoil futures prices at the Chicago Board of Trade rebounded strongly on short covering and fresh buying after having traded to a 20-month low and finally settled Thursday with big gains.

The US Department of Agriculture (USDA) estimated 2008 US soybean harvested acreage at 74.4 million acres, off 1.1 million acres from its earlier forecast of 75.5 million acres.

According to USDA, US soybean production is now lowered to 2.93 billion bushels, down from 2.98 billion bushels forecast earlier.

The 2008/2009 US soybean carryover stocks would be lowered to 205 million bushels.

USDA said that 76% of the US soybean crop was harvested compared to the five-year average of 83%.

The December soyoil futures prices rebounded from a 20-month low of 30.70 US cents and traded to a weekly high of 34.58 US cents and settled Thursday sharply higher near the top end of the weekly range at 34.48 US cents, up 3.01 US cents per pound from a week ago.

The weekly candlestick chart ended the week constructive and showed the newly developed upward momentum would continue. The most recent white candle showed that buying strength is stronger than the selling pressure for the entire week.

Chart support for this week stand at the 33.75 to 33.25 US cents level. The immediate-term trend would remain positive if this level is not violated this week.

Overhead chart resistance is adjusted higher to the 36.00 to 36.50 US cents. The upward rally would advance when this level is penetrated.

The three daily technical indicators ended Thursday neutral to slightly positive and signalled that the correctional recovery rally is still intact.

The daily stochastic turned positive and triggered the buy signal on Oct 17. The oscillators per cent K and D closed sharply higher and moved out of the bearish extended move zone to settle the week at 78.02% and 46.41% respectively.

Analysis of the daily stochastic showed that the market is temporarily out of its bearish phase and has the potential to adjust higher.

COCOA

ICE Futures US cocoa futures prices dipped to an 11-month low and then consolidated for most of the sessions before ending the week with small losses.

The strength in sterling which advanced more than 2% against the US dollar helped support the market.

Overall volume remained thin with funds and light short covering activities dominating trading.

The December cocoa futures prices traded downwards from a weekly high of US$1,974 to a weekly low of US$1,881 and recovered to close Thursday slightly lower at US$1,956, off US$21 per tonne from a week ago.

The daily candlestick chart settled the week friendly and indicated that the immediate-term trend would adjust higher this week.

There were two white candles with a long lower shadow last week. This sort of chart pattern shows that the market is in a rebound mode.

Chart support for this week is seen at the US$1,900 to US$1,850 level. Further downward pressure would emerge if the level is successfully violated.

Chart resistance for the immediate term stands the US$2,050 to US$2,100 level. A successful break above this level would confirm the start of an upward correctional rally.

The daily technical indicators stayed neutral to slightly positive on Thursday’s close and indicated that the market may have reached a temporary low.

The daily stochastic gave the buy signal on Oct 22 and indicated that the recovery rally is about to start. The oscillators per cent K and D ended higher at 34.86% and 29.02% respectively.

The 3- and 7-day exponentially smoothed moving average price lines (ESA lines) finished in bearish divergence and signalled that the main trend is still in a bearish phase.

Meanwhile, the 5-day Relative Strength Index (RSI) ended deep in the oversold zone at 13.41 points and showed that the market is grossly overdone on the downside and could be headed for a mild knee-jerk correction.

TIN

TIN prices on the Kuala Lumpur Tin Market (KLTM) rebounded strongly last week on renewed buying and closed at the best level in three weeks.

Recovery on the London Metal Exchange and advances in all metals due to the weaker US dollar helped support sentiment.

The KLTM tin prices gapped up at the opening and fluctuated from a weekly high of US$13,900 to US$15,200 and ended Friday sharply higher at US$14,600, up US$3,100 per tonne from a week ago.

Total trading volume during the four-day trading week dropped to 241 tonnes from 363 tonnes a week ago.

The weekly candlestick chart ended the week bullish. A white candle rising window occurred last week. A rising window occurs when the top of the previous is below the bottom of the current shadow. This type of chart formation usually implies a continuation of the bullish wave.

Chart support for this week is revised higher to the US$14,400 to US$14,250 level. The upward trend would persist if this level is not violated. Chart resistance for this week is seen higher at the US$14,700 to US$14,800 level.

The weekly technical indicators turned positive on Friday’s close and signalled that the upward rally would be sustainable.

The weekly stochastic turned bullish for the price chart on Oct 24 and indicated that the turnaround would resume this week.

The oscillators per cent K and D ended the week higher at 18.84% and 9.06% respectively.

The 3- and 7-week exponentially smoothed moving average price lines (ESA lines) are now in positive convergence and suggested that the market is now in an upward adjustment phase.

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