Price of Crude Palm Oil may have Bottomed Out

Price of CPOF was in a bearish trend since July 2008 and is still in a bear trend. However, recent price developments on the chart show that the current support level may hold, at least until the end of the year. The Relative Strength Index indicator is has remained flat despite falling prices. This means that the down trend momentum has weakened.

The declining short term 30-day average for CPOF is currently at RM1,740. The price of CPOF is just 6.5% under this short term average. The price is expected to break above the average this time because of an increasing momentum in the short term trend. The longer term 90-day average which is declining since July is currently at RM2,450.

This means that the current price is 33.6% below this longer term average. Therefore, the price of CPOF is technically oversold in the longer term. Oversold is the term used to indicate over-speculation. Normally price is expected to rebound when it goes into an oversold level.

Price has been oversold and rebounded a few times since August but failed to even go above the short term average. This time it is more likely to break above the short term average and climb to the longer term value, determined by the long term average.

Last Friday, Malaysia and Indonesia says that production will be cut to limit supply and prevent further fall in prices in anticipation of global recession. Indonesia’s Agriculture Ministry’s director general for plantations, Achmad Mangga Barani said in Jakarta Post that an agreement between the two nations has been signed with the aim of anticipating over-supply amid falling demand. He said that the cut will be made starting next year through a replanting program covering a total of 300,000 hectares of oil palm trees from both countries.

The government intervention from these two countries which produce some 85 percent of the world’s crude palm oil would support price of CPOF from falling further and therefore the low of RM1,400 has a high chance of being the bottom for the price of Crude Palm Oil.

Vegetable oils forecast expert Thomas Mielke believes palm oil prices have bottomed out and expects sharp increases ahead. “I believe prices have reached the floor two weeks ago and the market is now in transition,” Mielke told a forum of more than 100 palm oil traders in Petaling Jaya over the weekend.


CPOF chart as at 10 November 2008 using NextVIEW Advisor

Technically, if the price of CPOF is able to break above the short term average of RM 1,740, we may expect a rally to RM2,400 to RM2,500. This range is determined by the longer term average and a cluster of Fibonacci retracement levels of 50% and 61.8% from the historical high and from the price in July.

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Article contributed by Private Trader, Market Expert, Trading Coach and Chief Market Strategist of Nextview, Mr. Benny Lee. For more articles and commentaries from Benny, click HERE.