Crude Palm Oil Futures: May test support levels around RM2,100 to RM2,200

In my article last month, I mentioned that there is a strong resistance for the price of FCPO (Crude Palm Oil Futures) at RM2,800 per metric ton and if it is not broken, the price may pull back to its long term average at around RM2,000. That was when the price of FCPO was at RM2,700 and today it is at RM2,400. The news about rising imports and Indonesia tax on CPO did not have impact on the price of FCPO and I was still convinced that the price of FCPO need to be corrected downwards because the price is overbought. The price was quite volatile last month. From RM2,700 it went to a low of RM2,350 before rebounding back to RM2,650. However, the rally was not sustainable and price fell to the current level of RM2,400.

FCPO traders are concerned about the demand sustainability and rising US dollars which may weaken the price of FCPO. The Malaysian Palm Oil Board says in official report that Malaysian crude palm oil exports rose 2.3% on-month to 1.22 million metric tons in May. However, estimates from cargo surveyors expect a drop in export estimates for the first half of June. Intertek Agri Services estimated a fall of 10 percent in exports while SGS expected a fall of 9.4 percent.

Trades have already started to look for positive catalysts to boost CPO price but the lack of strong fundamental data caused traders to continue staying out. Trading volume was relatively weaker as traders are still looking for cues from the market. The cue was pretty obvious last week when price was high and if only they knew how to read charts or this article last month, they would at least know the market vibration and know where it is heading.

The price of FCPO is currently in a correction period but is still in a long term up trend as long as it maintains above the 90-day moving average (90-SMA) which is currently at RM2,260. There is a temporary support level created last month at RM2,350. The momentum in price and volume is getting weaker. The Relative Strength Index (RSI) continues to make new lows while the Average Directional Index continues to decline. These indicators indicate weaknesses in price momentum. Daily average volume in the past one month was 10,900 contracts, 14 percent lower than the previous corresponding month.


Daily FCPO chart with volume as at 15 June 2009 using NextVIEW Advisor Professional

The longer term average for the price of FCPO has increased from RM2,000 to RM2,100 per metric ton. The weak momentum suggests that price may continue to fall and test the support levels. There is another support level that can be defined from the October 2008 to date rally which currently around RM2,100. The price of FCPO may soon test the immediate support level at RM2,350 and if this support level is breached, then the price of FCPO may test support levels around RM2,100 to RM2,200.

Strong resistance maintains at RM2,800 while immediate resistance level is at RM2,650. These two resistance levels can be connected by drawing a linear trend line which defines the current short term down trend and if this line is broken, we may see the price of FCPO going sideways.

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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.