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Price of crude palm oil price plunged last month after a slight rebound at the end of February. FCPO was trading at slightly below averages last month and I was expecting a technical rebound but an unlikely rally. The price rebounded from RM3,457 per metric ton to a high of RM3,695. I have also mentioned that if the price is unable to stay above RM3,600 then more downside correction is expected. FCPO price continued to fall and settled at RM3,261 on 25th March. So, the price movement was expected. However, it was quite a volatile month on the downside as the price traded in a range between RM3,163 and RM3,700.

Traders took profit on high FCPO price as February data showed lower palm oil exports and higher production output. According to MPOB in its monthly report, February’s palm oil output and stock rose 3.5% and 4.2% respectively as compared to January while exports fell 8.5%. Trading volume in the Bursa Malaysia Derivatives market was relatively higher as compared to the previous month with an average daily trading volume of 16,500 contracts. February’s average was 15,500 contracts showing some bearish pressure.

More recently, cargo surveyor SGS (Malaysia) Berhad estimated Malaysia’s export to fall 0.3% to 954,441 metric tons for the period 1-25 March as compared to the same period in February while another surveyor Intertek Agri Services estimated exports to fall 3.7% to 937,501 metric tons. This shows no improvement on the export of palm oil and production is expected to increase further. This has caused traders to have a bearish sentiment towards the palm oil.

Technically price is in a major trend reversal. The longer term 60 and 90 day moving averages have started to turn bearish in the past one week. The short term 30-day moving average has been bearish since mid February. The Ichimoku Cloud has also indicated a strong bearish momentum forming since a few weeks ago. The averages are currently between RM3,500 and RM3,600 and the trend is expected to continue to be bearish as long as the FCPO price stays below these averages. Based on Elliott Wave technical study, the correction should be over when price hits a low at RM3,163. The question now would be whether the correction is over and a new trend will start to develop. To answer that, we will have to look at the other technical indicators.

Momentum indicators are mixed in the short term. The MACD and the volatility based Bollinger Bands indicators indicate a stronger bearish momentum while the Relative Strength Index (RSI) and the Momentum Oscillator indicators indicate a weak down trend momentum in the short term. In the longer term however, the sentiment is more bearish as the momentum indicators levels are below the middle levels.

Price of FCPO has corrected quite significantly in the past one months. Just a month ago, FCPO was trading slightly above RM3,900 and is now 18% lower. The fundamental data and estimates in the near futures does not encourage price of FCPO to climb higher. There is not much help from currencies as well. The US dollar against the Malaysian Ringgit has been trading sideways for the past one month. We may expect a technical rebound because price is below the averages but resistance will remain strong.

With a strong bearish move in the past one month, I’d expect price of FCPO to take a breather and at current price, there is a high chance that it may rebound in the short term. Immediate resistance is between RM3,500 and RM3,600 and I am expecting the price to rebound to this resistance level. Therefore I am expecting price to trade sideways with a support and resistance range between RM3,200 and RM3,500 in the next one month. However, if price breaks below RM3,200 and there may be an extension to the bear correction since February with the next target level of RM3,040.


FCPO daily chart as at 25 March 2011. Charted by Benny Lee using NextView Advisor Professional