Price of FCPO expected to trade sideways with a bullish bias

The price of FCPO (Crude Palm Oil Futures on Bursa Malaysia) continues to fall as I have expected in the past one month but fell lower than expected. There is a technical support level between the price range of between RM2,100 and RM2,200 per metric ton but the FCPO went as low as RM1,990 from RM 2,400. The price rebounded and is now at RM2,020. However, the market did rebound temporarily from RM2,150 to RM2,340 from 22nd to 26th June before making its way down again.

Tree replanting efforts is being continued by the government may caused production to fall further in the coming months and cut more supply to the already shortage in current palm oil supply to the market. Plantation Industries and Commodities Minister Bernard Dompok is confident optimistic about higher oil price in the months ahead. Cargo surveyors SGS Malaysia and Intertek Agri Services estimated a 15% and 18% on-month increase in the July 1 to 15 period. Fundamentally, price of FCPO should increase as the cut in supply and increasing demand may push prices higher.

The market has provided a good trading range for traders. The 14-day average true range (ATR) which measures volatility is 75 points or 3.6%. However, average trading volume has been declining but the average open interest is increasing. This simply means more traders are sitting on open positions for a longer term rather than trading them short term in the market. The 30-day average volume was 9,200 contracts, 15.6% lower than the previous month’s average. The average volume has been declining for two consecutive months.

The price of FCPO was still in an up trend last month when it is above RM2,300 (which is the 90-day moving average). At current price, the trend is now down. The 30- and 60- day moving averages have just started to decline. However, the current down trend seems week because momentum indicators are in divergence with the trend. The Relative Strength Index (RSI) indicator pivot lows are higher despite lower FCPO pivot lows. The Average Directional Index (ADX) which was increasing since mid-June has started to decline as well, indicating a weak down trend momentum.

The long-term average is currently between RM2,100 to RM2,300 and therefore price is currently slightly below this long term average range. With the current bullish momentum and positive fundamentals, the price of FCPO has a high chance to move higher and probably test the upper level of the trading range which is RM2,300 if the price is able to break above the immediate resistance of RM2,150. So, expect price to be trading sideways with a bullish bias. Current support level is RM1,950 and if this level is broken, the next support level is at RM1,800.


Daily FCPO chart with volume as at 16 July 2009 using NextVIEW Advisor Professional

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.