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The Eurozone crisis has helped price of crude oil to rise and US dollar to strengthen. Together with expected lower output in November and higher exports, these factors caused price of crude palm oil to rally in the past one month, Crude Palm Oil Futures (FCPO) on Bursa Malaysia increased from RM2,800 levels a month ago to the current price of RM3,248 per metric ton. In my last article, I have mentioned that price trend reversal may be near especially if the price breaks above the immediate resistance level at RM3,050. On a month-to-month basis, price of FCPO has risen 15%. The trading range for the past one month was between RM2,817 and RM3,270. The close near the trading range high shows that the market was very bullish last month. Trading volume was firm with 14,000 contracts traded on a daily average in the past one month.

Price of crude oil (Light sweet crude) in NYMEX has risen 10% since last month to US$97.80 a barrel. On 16th of November, the price went briefly above the US$100 mark. The US dollar index has risen 4% since early November causing the Malaysian ringgit to weaken. The Malaysian Ringgit s currently at RM3.16 to a US dollar as compared to RM3.07 end of October. Price of soybean, however has declined in the past one month. Price of soybean futures in CBOT fell 6.4% in a month to US$1,171.50 per bushel and this narrowed the spread between crude palm oil and soybean prices further. Year-to-date, price of crude palm oil has declined 16% while soybean declined 15% as compared to a difference of 14% a month ago.

Malaysia palm oil exports rose 19% in October to 1.91 metric tons as compared to the previous month, according to the Malaysian Palm Oil Board (MPOB). MPOB data also showed that supply of palm oil increased 2.1% on-month to 1.84 million tons while palm oil stocks fell 1.6% to 2.1 million tons at end of October. Exports are expected to continue to increase in December and supply is expected to be slower because of the unusually wet weather. In a latest export estimate, cargo surveyor SGS (Malaysia) Bhd estimates exports for November 1-15 period to increase 11.6% from the same period in October at 802,c917 metric tons. Another surveyor Intertek Agri Services Sdn Bhd estimated a 10.5% increase to 801,463 metric tons.

Price of FCPO reversed strongly last month once it broke above the RM3,050 resistance level and above the short to long term 30 to 90 day moving averages. All the moving averages have starts to increase and this indicates a major uptrend reversal. The price finally broke above the Ichimoku Cloud indicator after staying below it for 8 months. The Cloud started to change direction upwards and its width expanding and this indicates a good momentum in the current up trend. The ADX indicator has also changed its indication from weak down trend to strong up trend in the past one month.

After struggling to break and stay above the middle levels since March, the momentum indicators strongly broke above the middle levels and managed to achieve highs not seen in 9 months. The MACD indicator, which went above its slow-MACD a month ago, continues to increase. RSI and Momentum indicators also show strong upward momentum. The Bollinger Bands expanded in late October and is still expanding. FCPO price currently trades near the top band of the Bollinger Bands. All these momentum indicator indicate a strong upward momentum with no signs of it weakening at the moment.

The trend may continue and price is expected to increase further with the current momentum. A few months ago, I have mentioned in my article that once the price pulls back to RM2,800, then it may start to rally to a RM3,400 target level in the next 6 months. Now, I am expecting it to be achieved with the next 3 months. However, we may expect slight pullback to around RM3,180 to RM3,200 because price is being overbought in the short term. The price remains bullish as long as it stays above RM3,100.

FCPO daily chart as at 18 November 2011. Charted by Benny Lee using NextView Advisor Professional

After falling to a low of 1,353.45 points on Monday the FBMKLCI settled at 1,393.69 points on Thursday. The benchmark index managed to close 6.23 points higher on a week-to-week basis. The market was volatile for the past one week with the FBMKLCI trading between 1,353.45 and 1,403.01 points. Trading volume was relatively lower. 880 million shares were traded on a daily average in the past one week as compared to 1.1 billion shares in the previous week.

The national budget will be announced a day after this article is written and I think that even if there are goodies for the equity market, the effect may be minimum. Investors are more concerned about the global economy. It’s just quite difficult to be optimistic at the moment and the market volatility just scares off investors. US Dollars and treasuries continue to rise after a pullback in the past two weeks and gold price started to rebound this week. All these indicate that confidence in the equity market is getting much weaker.

The third quarter of this year ended in a strong bearish note and has wiped out all gains in the previous three quarters. Markets would have ended up in heavy losses for the past one week but strong rebound on Wednesday recovered the losses. The Dow Jones Industrial Average shed only 30.65 points in a week to 11,123.33 points after rebounding from a 12 month’s low. London’s FTSE 100 index rose 94.42 points to 5,291.26 points and France’s CAC40 index increased 47.70 points to 3,075.37 points. Asian markets are still in red. Hong Kong’s Hang Seng index is still down 4.6% in a week at 17,172.28 points Thursday. Japan’s Nikkei 225 declined 0.8% to 8,624.93 points and Singapore’s Straits Times Index is down 3.9% at 2,603.12 points.

The renewed fear in the market prompted gold price to rebound from US$1,600 two weeks ago to US$1,651.80 an ounce on COMEX. Price of gold was at US$1,900 in early September. Crude oil was volatile last week. The Light sweet crude oil in NYMEX fell from US$83 an ounce two weeks ago to a low of US$76.40 early last week before rebounding to US$82.55 on Thursday. The weak economic indicators also pressured crude palm oil price and this commodity declined 3.1% in a week to RM2,808 per metric ton on Bursa Malaysia. As the US Dollar continues to strengthened, it pulled back sharply on Tuesday. In a week, the Ringgit was slightly up against the green back from RM3.177 to RM3.169 against a dollar.

The FBMKLCI continues to stay in the down trend by maintaining below the short to long term moving averages. The FBMKLCI has not even managed to climb towards its short term 30 day average before pulling back. The short term 30-day moving average is currently at 1,420 points and therefore the index is still considered in a short term down trend despite the strong rebound. The longer term 60 and 90-day moving averages range between 1,470 and 1,500 points. The rebound is not strong enough to change the characteristics of the down trend. The Ichimoku cloud continues to decline and expand downwards. The indicator continues to indicate a strong bearish market.

Momentum indicators also indicate that the bears are still in control despite the rebound last week. RSI, MACD, and Momentum Oscillators are still below the middle levels. The FBMKLCI is still trading below the middle band of the Bollinger Bands and this indicator is still declining. There are no signs of the bearish momentum slowing down.

The broken key support level of 1,420 remains as the current resistance level. The current rebound may just be a technical rebound of a bearish down trend if the index is unable to break above this resistance level. Immediate resistance level is at 1,400 points. Optimism may start to develop only is these resistance levels are broken. In the intermediate term, more downside is expected with a technical target of 1,200 points. I am not too optimistic yet on the market until there are clearly signs both fundamentally and technically. If the FBMKLCI falls below the support level of 1,350 points again, then we may expect more blood in the streets.

Daily FBMKLCI chart as at 6 October 2011 using NextVIEW Advisor Professional

The price of crude palm oil futures (FCPO) in Bursa Malaysia is still trading sideways in a range between RM2,950 and RM3,080 per metric ton for the past one month. The December futures contract price closed near the range high at RM3,078 on September 16 shows that the market was somehow bullish, which is almost the same level a month ago. It is currently near the resistance level of RM3,100. Stronger US Dollar and lower inventories and production contributed to the price increase. Trading volume for FCPO in Bursa Malaysia continues to decline. Daily trading volume average for the past one month was 10,800 contracts as compared to 12,400 contracts in the previous month.

Malaysia’s crude palm oil (CPO) output declined 4.8% in August as compared to the month of July to 1.67 million tons according to the Malaysian Palm Oil Board (MPOB). In the report, MPOB also stated that palm oil stocks for end-August stands at 1.88 million tons, down 5.6% as compared to the previous month. Palm oil exports fell 2.7% to 1.69 million tons. However, latest data shows disappointing export figures because lower global economic uncertainty which cuts demand. According to cargo surveyor SGS (Malaysia) Berhad, palm oil exports estimates for 1 – 15 September fell 31% from a month earlier and another surveyor, Intertek Agri Services estimated a 32% decline.

Price of Soybean has declined for the past one month about 7% since the beginning of this month due to stronger US dollar and lower demand. However, the spread between soybean and crude palm oil has slightly narrowed because of the decline in soybean oil. Price of soybean is near the same level year-to-date while price of crude palm oil is down 20%. The Us dollar gained more than 4% in a month against the Malaysian Ringgit. The Malaysian Ringgit is currently quoted at RM3.11 against a US dollar as compared to RM2.98 a month before.

The price trend for FCPO is still technically in a down trend as the short to long term moving averages continue to decline but the price action for the past one month shows a possible trend reversal taking place. The price of FCPO has tested the short and medium term 30 and 60-day moving averages resistance level for the past one month and is currently above these averages. However, it is still below the longer term 90-day moving average which is now at RM3,140. FCPO price is still below the Ichimoku Cloud but the thinning of the cloud moving forward indicates that resistance is expected to be weak.

Bullish momentum indicators have been building up in the past one month. MACD has crossed above its slow MACD trigger line and is climbing nearer to its middle level. The RSI indicator is forming a bullish convergence with the price trend and is currently at its highest level in three months. The Momentum oscillator is also in a bullish convergence with the price trend and is slightly above its middle level. The Bollinger bands indicator shows that the price is still in a correction but the price is now trading near the upper band and this also shows a bullish momentum building up.

Technically, price is going to reverse its down trend because of building up bullish momentum. The reversal can only be confirmed further once the price breaks above its resistance level at RM3,100. We are going to expect a rally of this level is broken. Supply of palm oil is expected to decline in this last quarter and the price of FCPO is going to depend on the demand and US dollar. However, with the disappointing export estimates from the cargo surveyors, we are probably going to expect an immediate pullback in price and price being supported at RM3,000.

It was a bearish market last week with the FBMKLCI closing 1.8% lower in a week to 1,440 points Wednesday, weighed down by Tenaga Nasional. Market sentiment drops as Greece once again is expected to default and may create a ripple effect in the global economy. For the past one week, the FBMKLCI traded between 1,436.71 and 1,480.33 points. The close near the low shows the market was controlled by bears. Trading volume increased to a daily average of 921 million shares as compared to 770 million shares in the previous week. The trading volume was particularly high on 9th and 14th of September and this shows that there is some selling pressure.

FBMKLCI heavyweights Tenaga Nasional Berhad and Sime Darby Berhad lead the losses in the market on Wednesday. Tenaga is expected to incur higher costs amid shortage of gas supply. Investors are concerned about the Securities Commission probe into Sime’s acquisition of Eastern and Oriental Berhad. In global economic development, two major banks in France were downgraded by Moody’s last week because of the large exposure in Greece. The crisis-laden Eurozone may cloud investors’ sentiment for a long time as there are no apparent solutions.

Global equity markets closed lower with some volatility despite rebound last Monday. The Dow ended up 1.7% lower in one week at 11,246.73 points. London’s FTSE declined 1.7% lower to 5,227.02 points while France’s CAC40 index plunged 4% to 2,949.14 points because of the Eurozone crisis. In Asia, markets were not too optimistic with the rebound in western markets. Hong Kong’s Hang Seng Index fell 3.4% in a week to 19045.44 points and Japan’s Nikkei 225 index fell to its 28-month low after shedding 2.8% in week to 8,518.57 points. Singapore’s Straits Times Index declined 3.3% to 2,739.35 points. Outperform Asian markets Jakarta and Thailand fell 5% and 4.6% in a week respectively.

The uncertainty in the global economy pressures commodities prices as it continues the uptrend moderately. COMEX gold ended up US$4 higher in one week to US$1,824.20 an ounce. The double top chart pattern formation in gold price for the past one month shows that the price is toppish with US$1,900 as strong resistance level. For the past two weeks, crude oil is trading in a range between US$85 and US$90 a barrel with a slight bullish trend forming in the short term. Expect crude oil to trade between this range. Crude palm oil prices continue to trade sideways despite stronger exports and lower supply because of increasing US dollar. Crude palm oil price continues to trade between RM2,900 and RM3,100. The Malaysian Ringgit is currently at RM3.07 against the greenback as compared to RM3.00 a week ago.

There are no changes in the bearish trend characteristics for FBMKLCI. The short term 30-day moving average is currently at 1,480 points while the mid and long term 60 and 90 day moving averages is in a range between 1,525 and 1,532 points. The declining averages and location of FBMKLCI below these averages shows that there is no signs of any reversal. The Ichimoku Cloud continues to expand downwards and this shows stronger resistance in the near future. The moving averages and Ichimoku Cloud indicate strong resistance at 1,480 and 1,510 points level. Market may change its bearish direction only if the resistance levels are broken.

There also no signs of any change in trend in the momentum indicators. Although there were positive divergences in the momentum indicators against the FBMKLCI in the short term, the MACD, Momentum Oscillator and RSI were still unable to go above the middle levels and this indicates that the bears are still pretty much in control. The FBMKLCI continues to trade near the bottom band of the Bollinger Bands which means that the bearish pressure is starting again in the near term. The ADX indicator however, has not indicated any strong downtrend momentum.

The key support level for the FBMKLCI is at 1,420 points while key resistance level is between 1,480 and 1,510 points. The FBMKLCI just broke below the 1,450 points immediate support level and therefore, we are expecting the index to test the key support level in the near future, and possibly this week. Fundamentally, the rising US dollar is an indication that money is flowing back to the US and this is not a good indication for the Asian markets. From the chart, the US dollar is set to rally against the Malaysian Ringgit to the next resistance level at RM3.20.