Trading the Crude Palm Oil Futures

The price of FCPO made a new pivot low after rebounding to a high of RM2,650 per metric ton early June. Since then the price of FCPO fell 19% in one month. FCPO price tested and broken the support level at RM2,350 before closing at RM2,150 on the 22nd of June. However, it rebounded and closed at RM2,317 on the 26th of June. The FCPO is back in a down trend after enjoying an uptrend since the beginning of this year when it broke the bottom line of the uptrend channel.

The price is now at the long term average price, defined by a 30-week average. The price is also at the 90-day average. The down trend has formed a linear down trend channel (please refer to chart below). The price is currently in the middle of the channel. The down trend is considered strong technically because the momentum indicators like the RSI and MACD are in convergence with the lower pivot lows and pivot highs.

Traders can trade within the down trend channel (See chart below). The top line of the channel which acts as resistance is currently at RM2,450 and declining and the bottom support line is at RM2,100 and declining. Going short at resistance level is preferable because the down trend momentum is stronger. There is no opportunity to trade at current level because the price is in the middle of this down trend channel.

It may be quite difficult to trade at current price when it is at the long term average because price may go sideways. So, it may be able to move into the support and resistance levels of the down trend channel. If the trader trades in this market, a stop loss should not be less than RM80 as the 3-period Average True Range (ATR) is averaging at RM80. For a safer stop, the stop loss should not be less than RM120, which is 1.5 times the ATR.


Daily FCPO chart with volume as at 26 June 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.