LONG-TERM TREND: Bearish

SHORT-TERM TREND: Bearish, but technical bounce overdue and could happen anytime

Momentum Index: -678

Relative Strength Index: 30

OBSERVATIONS: Three trade reports - the Malaysian Palm Oil Board (MPOB) report on September data, export monitors Societe Generale de Surveillance (SGS) and Intertek Agri Services' (IAS) October 1-10 export estimates - unveiled last Friday and news of defaults on export contracts convinced industry and market players that things are going to worsen for palm oil.

MPOB put end-September 2008 palm oil stocks at 1,949,498 tonnes, up 101,368 tonnes or 5.48 per cent from that at the end of the previous month, due to poor export demand. That's not a record but it does not give the industry or market players any cause for comfort. That's because the way things are going, end-October stocks could well burgeon further - and probably to a new high.

What concerns market players now was news that China has defaulted on previously-agreed purchase contracts and that other big buyers are demanding re-negotiation of prices.

The latest export estimates are seen as evidence of the reneging of previously-agreed purchase contracts for palm oil. SGS put October 1-10 exports of palm oil at 346,579 tonnes, down some 46,000 tonnes or 11.70 per cent from that for the similar period in September. IAS' October 1-10 estimate of 336,070 tonnes was even lower than SGS'.

Not surprisingly, the bulk of last week's panic selling occurred last Friday, when the actively-trade December 2008 contract, which settled at RM1,773 a tonne, dived RM171 in a single day's trade, well over one-half (actually it was 75 percent) of the total loss RM227 or 11.35 per cent over the week. The only consolation was that the loss was less than the previous week's RM313.

Crude oil's fall below US$80 a barrel and the global equity market rout last week also weighed on the local CPO futures market.

Conclusion: Though still a bear the technicals suggest that this market has descended into deep oversold territory, primed for a technical bounce.

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

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