Crude Palm Oil: Correction may soon be over, time to rebound and rally

In my article last month, I mentioned that the price of Crude Palm Oil Futures (FCPO) in Bursa Malaysia which was at RM 2,145 per metric ton at that time may only find support between RM2,000 and RM2,050. The price of FCPO fell to a low of RM2,013 on October 6 and rebounded to close at RM2,085 on October 9. With this close, the price of FCPO fell RM94 or 4% from a month ago. I also mentioned that once price goes to this support level, it may start to rebound and rally at least to RM2,300 in the intermediate term. Now that price is near this technical support area, there is a good chance for buying because risk is low.

The price of FCPO is still in a correction zone of a major uptrend, clearly defined by a triangle chart pattern since May this year. Price is currently below the short to long term 30 to 90 day moving averages. The averages are currently converging and this indicates that the correction may be over soon. The averages are between RM2,150 and RM2,230. Average daily trading volume has slightly reduced to 9,200 contracts last month from 10,400 contracts in the previous corresponding month. Selling pressure in the previous month has eased off.

The support level of the triangle pattern may be broken in mid of September at RM2,130 but the stronger support level, like I mentioned in my previous article is between RM2,000 and RM 2,050. Therefore, it is not considered as a broken support level and the correction is still intact. Currently, the support level remains at RM2,000 and the triangle pattern resistance level is RM2,300. Price is expected to reverse its uptrend if it breaks below the support level or continue its uptrend if it breaks above the resistance level.

Momentum indicators are slightly bullish now with RSI and Momentum indicators inching away above the middle level. The strongest sign of a bullish momentum is the MACD indicator which has just started to cross above its trigger line or its 9-day moving average. The only indicator that still indicates down trend is the ADX indicator. However, the ADX is the most lagging indicator.

The weekly chart shows a bullish reversal Japanese Candlestick pattern called the “Piercing Line”. The last time the chart showed a similar bullish reversal pattern on the weekly chart was on the week of July 17 and price rallied from RM2,120 to RM2,440 in four weeks. With the current pattern, price is highly expected to rebound out of the correction zone and rally upwards.

Price is expected to at least rally the next resistance at RM2,300 and even go higher to test the next resistance level at RM2,400. If the price of FCPO is ablt to overcome these resistance levels, the price of FCPO may even rally to RM2,800, but probably not this year. The forecast is valid only if the price of FCPO stays above RM2,000 and if this support level is breached, price of FCPO may fall further to RM1,900.


Daily FCPO chart as at 10 September 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.