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Seems like price of FCPO is at a comfortable level, trading sideways between RM3,200 and RM3,400 per metric ton for the past two months. On my FCPO chart, which I have mentioned two months ago, the support and resistance level for the sideways trend is between RM3,200 and RM3,500 and looks like the market is still not moving anywhere. In the past one month, price rebounded from a low of RM3,200 to a high of RM 3,407 before settling at RM3,390 on May 20. The futures market was quieter last month with only a daily average of 13,400 contracts traded compared to 16,000 contracts in the past two months. There is also slight decline in open interests.

Market was bullish in the past two weeks on higher export figures as demand for tropical oil for a wide range of products increased. Malaysian palm oil exports rose 7.8% on-month in May to 1.33 million tons, according to the Malaysian Palm Oil Board (MPOB). There is also an increase of 8% in palm oil output to 1.53 million tons while end-April stocks increased 3.5% to 1.67 million tons. In a more recent export data, cargo surveyor SGS (M) Berhad estimated palm oil exports for the May 1 – 20 period to rise 28% from the same period last month while another surveyor Intertek Agri Services estimated a 30% increase.

From the monthly export figures, the up trend should continue at least until July or August. Therefore, expect price to be supported at least until the next 2 to 3 months. We will now look at the market’s opinion towards FCPO price from the charts.

While the major trend is still technically bearish, price of FCPO has started to rise above the short and medium term moving averages between RM3,300 and RM3,350. FCPO price has been below these averages for the past two and a half months. The long term 90-day moving average is currently at RM3,480. Last month I mentioned that the market may bottom out at RM3,200 because of the “Double Bottom” chart pattern formation. FCPO has moved upwards into Ichimoku Cloud’s range and this means that a possible bullish reversal is taking place and this time with a stronger momentum.

Momentum indicators continue to increase indicating an increasing bullish momentum in price despite moving sideways. The RSI and MACD indicators are now at their three months high and above their middle levels. These indicators have also formed a bullish divergence against the price in the medium term. A bullish divergence occurs when the price trend is bearish but the indicator’s reading is rising. Price of FCPO has also started to trade near the upper band of the Bollinger Bands. It has been trading near the bottom band for the past one month. However, the slight expansion of the Bollinger bands show that there is a slight increase in volatility but not an impulsive one to immediately cause a rally.

Technically it looks like the FCPO price is gearing up its bullish momentum. The trend and momentum indicators show that the bearish price trend is reversing and the earlier chart pattern indicates a bottom market. I expect FCPO price to immediately test RM3,500 resistance level with this kind of momentum and a probable short term pullback at this level. The trend reversal is confirmed further when price breaks above RM3,500 with a mid-term target level of RM3,800. The current fundamental figures support the current price action and this makes the chances of a bullish price rally higher.

The RM3,800 target would be by July this year. However, if price is unable to break above RM3,500, then we may expect an extended sideway price correction and the target may need to be revised accordingly.