MINOR CORRECTION EXPECTED ON THE PRICE OF CRUDE PALM OIL

In My previous article more than a month ago, I have mentioned that the price of Crude Palm Oil Futures is set to rally with a target of RM2,100 per metric ton. The price was RM1,740 that time. On the 7th of January, the price of FCPO went as high as RM2,058 before it pulled back to the current level of RM1,988.

The price is now above the short to long term 30 to 90 day moving averages. The long term 90 day average is currently at about RM1,800 and the trend can only be sustained if maintained above this level.

The momentum of the current up trend rally is strong and this is confirmed by momentum indicators like the Relative Strength Index and the Moving Average Convergence/Divergence (MACD) indicators. These indicators are rising with the price. Therefore there is a high chance that the price can stay bullish. Volume has been increasing as well. FCPO trading volume on the 7th of January 2009 was the highest since April last year at 17,145 contracts.

Technically, there are still potential upside to the price of FCPO and therefore the chances of the technical price target of RM2,400 to RM2,500 being achieved is high, as long as the price of FCPO maintains above RM1,800. This is an important level to watch.

In the mean time, expect the price to form a minor correction sideways with a downward bias after a strong bullish move in the past few weeks and the expected slowdown in exports in the coming weeks. Price is overbought in the short term. The daily stochastic indicator shows a reading of 76, which is still considered overbought (price relatively high in the short term). The reading was 97 (very overbought) when the price of FCPO went to a high of RM2,050.


Daily FCPO Chart chart as at 12 January 2009 using NextVIEW Advisor. Click on chart to view enlarged chart.

The current price does not warrant a low risk trade because it is relatively high. Although the potential profit target is high, the risk is equally high. A pull back on the price of FCPO may be a good time to buy. In other words, we buy on dips. Expect the price to test the RM1,800 level. The longer term target for FCPO is RM2,400 to RM2,500.

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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.

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