CPO prices to stay volatile

CRUDE PALM OIL 

BURSA Malaysia Derivatives’ crude palm oil (CPO) futures prices started the first two trading days of the year on a weak note and then rebounded strongly on speculative buying to close lower on Friday, but off sharply from the intra-week lows.

Meteorological reports predicting heavy rains over the weekend in some of the palm oil producing states prompted traders to sell aggressively earlier on account of the subsiding flood waters in Johor, to cover short positions.

Drop in exports in December contributed to the negative setting earlier. Last week, Societe Generale de Surveillance estimated the export of Malaysian palm oil products for December to be lower at 1.183 million tonnes, off 13% from the same period in November.   

Trading volume for the week dropped during the three-day trading week to 43,357 contracts from 78,396 contracts the previous week. 

The March CPO futures prices ranged widely from the week’s low of RM1,911 to RM2,002 and ended the week moderately lower at RM1,961, off RM34 per tonne from previously.   

A black candle with a long lower shadow occurred last week and signalled that the immediate-term momentum of the market was slightly bullish. The overall chart setting would turn very bullish if prices could penetrate the RM2,000 per tonne level this week. Last week’s rebound rally was fuelled by a meteorological call. Continuation of the upward move would be determined by the outcome of the weekend showers. Remember, weather forecasters' calls are similar to market analysts’ calls. They are known to be wrong sometimes. 

Chart support for the March futures stands at the RM1,950-RM1,935 level. Chart resistance for this week is seen at the RM1,980-RM1,990 level.   

Prices of metals and soft commodities are selling across the board worldwide. Unusual bearish volatility in crude oil may take the steam out of the bio-diesel hype. South American soybean crop is in excellent growing conditions and any sharp drop in rival soyoil prices would likely to bring on fresh hedge-selling bearish drag by CPO producers from Malaysia and Indonesia.

The weekly oscillators are mostly negative. Stochastic is on a sell signal and calls for more downward trading. 

The weekly moving average convergence/divergence (MACD) remained positive and continues to indicate that the main trend is bullish. The trend tracker 3- and 7-week exponentially smoothed moving average price lines (ESA lines) ended in bullish divergence and signalled that the upward trend was still intact (bulls and bears on charts show the change in trend). 

Meanwhile, the 9-week Relative Strength Index (RSI) was in downward trend and indicated that the underlying strength of the market was weak. 

SOYOIL 

CHICAGO Board of Trade (CBOT) soybean oil futures prices declined last week in tandem with weaker CPO and crude oil prices and finally settled on Thursday with minor losses.

Limit-down losses in corn futures prices and excellent growing conditions in most of the South American soybean regions exerted pressure on earlier bullish players.

The January futures prices closed 0.88 point lower at 28.30 US cents per pound. Trade for the week eased from the week’s high of 28.75 to 28.19 US cents per pound.

The weekly candlestick chart closed the week bearish, showing that a bearish downward cycle had started. Last week’s big black candle signalled that the immediate-term strength of the market was weak. Selling pressure overwhelmed buying power and caused the market to settle at the tail end of its weekly range.

Immediate-term chart support for the January futures is now seen at the 28.00-27.80 US cent level. Breaching of this support would mark the start of an extended downward move. Chart resistance for this week remains at the 28.50-28.65 US cent level. 

The weekly indicators ended the week mixed and indicated that the market would resume its bearish cycle this week. 

The weekly stochastic ended the week slightly positive and indicated that the main trend was still slightly constructive. Negative convergence shown by the weekly ESA lines indicated that a bearish wave is about to start. 

The weekly MACD ended its 12-week-old buy signal last week and confirmed that a bearish wave has begun. Meanwhile, the 9-week RSI headed south and ended lower at 57.28 points, indicating that the immediate underlying strength of the market was negative. 

COCOA

COCOA futures prices on the New York Board of Trade remained bullish in the first week of the year, boosted by renewed fund buying, and settled the week at their best levels in eight weeks. 

Despite weakness in soft commodities prices throughout the world, cocoa prices had managed to buck the trend and move higher. This funds-inspired eight-week-old rally appears to be reaching its top-end and cocoa being a very technical trading commodity, could encounter strong selling pressure if the upward move is expanded. We look to a sharp downward correction in the near term.

The March 2006 cocoa futures prices rose from the week’s low of US$1,650 to US$1,696 and ended the week moderately higher at US$1,659, up US$24 per tonne from previously. 

The weekly candlestick chart formed a doji candle last week and indicated that the market was at a crossroads awaiting fresh impetus for the next big move. 

Chart support for the March cocoa futures is pegged at the US$1,640-US$1,630 level. Breaking of this support would signal the beginning of a downward cycle. Chart resistance for this week now stands at the US$1,680-US$1,690 level. 

The weekly oscillators ended the week mixed and indicated that the market was still positive despite being technically overbought. 

The weekly stochastic held on its three-week-old sell signal and indicated that the market was in a toppish position. The 3- and 7-week ESA lines stayed in bullish divergence on Thursday’s close and indicated that the main trend was still constructive. 

TIN 

TIN prices on the Kuala Lumpur Tin Market (KLTM) dropped heavily last week as traders sold aggressively, influenced by the softer tin prices at the London Metal Exchange. Buyers remained sidelined throughout the week in anticipation of more downward pressure following the strong upward lift in the last trading week of 2006.

Spot tin prices on the KLTM dropped heavily and ended Friday at US$11,130, down a hefty US$870 per tonne from a week ago. Trade for the week fluctuated from US$11,570 to US$11,000 per tonne. 

Total volume for the week eased to 165 tonnes from 211 tonnes a week ago. 

The weekly candlestick chart closed the week on a bearish setting. A black candle occurred last week. This bearish development shows that sellers are much stronger than buyers at these levels. Friday’s close below the low of the previous big white candle confirmed that the immediate-term trend had turned bearish. 

Chart support for this week is adjusted lower to the US$11,000-US$10,950 level. Chart resistance is now seen at the US$11,150-US$11,200 level. 

Most of the weekly technical indicators settled the week negative and indicated that the downward selling pressure would sustain. 

The weekly stochastic ended the week bearish with the sell signal triggered in the last week of 2006. Based on the stochastic, prices are likely to move lower than higher this week.

The weekly MACD closed the week with its bullish signal intact and indicated that the main trend was still positive. The 3- and 7-week ESA lines remained in bullish divergence and signalled that the market was still in a positive phase. The 9-week RSI closed sharply lower at 64.46 points and indicated that the immediate-term underlying strength was bearish.