FCPO analysis - RM 2,800 again?

A month ago, I have expected the price of FCPO in Bursa Malaysia to have a bullish bias and test the resistance level of RM2,300 per metric ton because that was the long term 90-day average. The price then was RM 2,020. After facing some resistance at RM 2,340, the price of FCPO continue to climb and went as high as RM2,515 one day before this article is written. The price of FCPO pulled back to close at RM2,441 on 14th August because of sharp overnight fall in the price of soyoil and FCPO in the Dalian Commodity Exchange. The correction has formed a bearish reversal chart pattern based on Japanese Candlesticks analysis. So, question is, is the price of FCPO going to correct further downwards?

Minister for Plantation Industries and Commodities Bernard Dompok said on Friday that August inventories for palm oil may remain unchanged from a month earlier at 1.3 million tons. Cargo surveyors Intertek Agri Services and SGS (M) Bhd are due to announce Malaysia palm oil export for 1-15 August in the next few days but traders are expecting shipments to increase 1% from the same period last month. Demand from China, which is Malaysian main palm oil importer remains unchanged despite worrying economy. Weather forecasters are seeing developing El-Nino weather patterns towards the end of this year.

The FCPO price uptrend may be able to be sustained because of the strong fundamentals. Technically, the price of FCPO is still in an uptrend. The price is above the short to long term 30, 60 and 90-day moving averages. Price is just slightly higher above the averages and volume has been slightly increasing in the past one month. The 90-day average is currently at RM2,380. While the 60-day average is at RM2,293. The rebound from the recent low of RM2,000 confirms the intermediate up trend line (S1 on the chart).

Momentum indicators are showing strength in the current rally. The Relative Strength index (RSI) Moving Average Convergence/Divergence (MACD), Momentum and Average Directional Index (ADX) indicators are all making new highs. The strong momentum shows strong support and less resistance and therefore there is a high chance that price can climb higher. Therefore the pullback on Friday may be short-lived with a mild correction and the uptrend is expected to resume. So, this answers the question in the first paragraph.

The short term support level is at RM2,300 (the 60-day average) and this is where the price is likely going to be supported in the current pullback. If the price of FCPO can stay above this level, then expect price to continue to go higher and test the RM2,800 resistance level within this year. So there you go, based on technical analysis, I am currently bullish in the price of FCPO and RM2,800 can be tested again and this answers the title for this analysis.

There will be resistances along the way especially at RM2,600. However, if price falls below RM2,300, further sideways correction is expected as price should hover around the averages if there not much developments in the industry or when the market is uncertain.


Daily FCPO chart with RSI and volume indicators as at 14 August 2009 using NextVIEW Advisor

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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.