Shor-Term Opportunity in Palm Oil - Golden Agri-Resources Ltd

The price of crude palm oil has corrected heavily and companies that deals with this commodity has also been affected by the correction. Price of crude palm oil futures (CPOF) in Bursa Malaysia derivatives exchange have corrected about 54% from RM4,330 per metric ton in March to the recent low of RM2,000 per metric ton. The price have somehow found support at RM2,000. In the past few days, the price tested this level again and rebounded from it. The December contract closed at RM2,090 per metric ton today.

From the chart, technical indicators have indicated that the down trend momentum is weak and the current price is at an oversold level. Therefore there is a high chance of price rebound and rally. However, the rally is expected to face strong resistance as the price of CPOF is technically in a down trend.

A main-board listed company in Singapore that is heavily influenced by the price of crude palm oil is Goldenagr. Goldenagr is one of the world's largest privately-owned oil palm plantation companies. Its operations are strategically located over Indonesia. In December 2005, Goldenagr expanded its operations into China which include refineries, port and oil-seed crushing facilities.

The current price of SG$0.315 is more than three times lower than the price in just four months ago. The correction is more than the correction of the price of CPOF. Price of Goldenagr today rebounded from the support level of SG$0.30, with an intraday low of SG$0.285.

Chart wise, the price is in a very strong down trend and heavily oversold. The short term 30-day average is at SG$0.46. Price is oversold because it is 31% below the average. The down trend is strong as the short to long term moving averages are declining. The advancing Average Directional Index (ADX) confirms that the momentum of the down trend is strong.

The over-speculation may provide some opportunity in the short term as a strong rebound and short rally can be expected. The price of SG$0.30 which is tested twice may be a good support level. Short term momentum indicators like the Relative Strength Index (RSI) and Stochastic show a bullish divergence which means that the current low is well supported. The Volume pattern also indicates a divergence.

Another chart pattern that may confirm the rebound is the BARR pattern or Bump and Reverse Reversal pattern. The down trend is first defined as the trend line T1 in the chart below. The second trend line (T2 in the chart below) that started from September formed the bump in the down trend. A trend line bump is formed when the slope of the trend line is more than 45 degrees. The bump is usually formed because of over-speculation.

Expect price to rebound from the current level with a price objective of SG$0.46 (conservative) to SG0.58 (optimistic). The short term 30-day average and the T1 trend line is currently near SG$0.46 and the 38.2% retracement from the high on 30th of May this year with the mid-term 60-day average is around SG$0.58. The price objectives are low because the strong down trend cannot be discounted. Therefore, opportunity is only available for short term traders and they should respect the support level of SG$0.285 and should not keep this stock if price goes below this level.

Update: As at 1.00 pm, price of Goldenagr is at SG$0.33


Golden Agri daily chart as at 30 September 2008 charted by Benny Lee using NextVIEW Advisor

Commentary and analysis by Benny Lee