OBSERVATIONS: Players who returned to the Kuala Lumpur crude palm oil futures market last Wednesday in a holiday-shortened trading week (last Monday and Tuesday were Chinese New Year public holidays) were confronted with a slew of bearish developments and news - the plunge in the bellwether US soyabean oil futures due in part to the strength of the US dollar; crude oil’s relapse to near US$40 a barrel; and poor export sales estimates.
Many market participants scurried for cover, liquidating long (buy) positions. Selling snowballed after the decisive downside penetration of the psychological RM1,800 a tonne level. The actively-traded April 2009 contract was sent reeling to a low of RM1,739, before recovering some on short-covering and profit-taking ahead of the weekend. The contract closed last Friday at RM1,779 a tonne, down RM 51 or 2.79 per cent over the week.
Players were particularly dismayed by the latest export sales estimates. Societe Generale de Surveillance’ and Intertek Agri Services’ January 1-25 palm oil estimates were on average lower by some 360,000 tonnes or 27 per cent compared to that for the similar period in December last year.
Industry concern is that the resumption of the downtrend in export sales will see stocks piling up again. End-December 2008 stocks were still a deadweight 1,994,681 tonnes, despite the record high 1.61 million tonnes of export sales in that month.
Conclusion: What last week’s breakdown below the psychological RM1,800 has done is turn this market into a short-term bear.
And because the short-term trend is now a bear, and discretion being the better part of valour, market players would be well-advised to initiate short (sell) contracts but only at technical overbought positions below the immediate overhead resistance level, presently pitched at RM1,830.
But the long-term trend of this market is still a bull, gone into hibernation for now
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