Tuesday, July 5, 2011

Daily CPO Critical Support At RM2900-RM3000 Levels

Commodity to watch: CPO

CPO: Critical support at RM3000 but possible technical rebound from oversold position

After surging to YTD high at RM3967 on 10 Feb, spot CPO prices eased RM10 to a new YTD low at RM3040 due to a bearish supply and inventory outlook. Fresh signals are expected from MPOB June export data early next week.

To recap, seasonally stronger production caused Malaysia’s palm oil stock to rise mom for the fourth consecutive month, climbing 15% mom to a 16-month high of 1.92m tonnes at end-May 2011. Consensus view that Malaysia’s CPO stock level will edge up further by 4% mom to 1.99m tonnes in June due to strong production. However, it could be offset somewhat by 1) lower rapeseed crops in the EU, corn crops in US and oilseeds crops in China due to unfavourable weather and 2) rise in biodiesel mandate in Brazil and Argentina. Exports are also expected to increase as the more attractive CPO prices could prompt China and India to replenish their dwindling stock.

Technically, CPO outlook remains negative as it is still stuck in a downtrend channel from its peak in Feb. It will be bearish once prices drop below the RM3000 psychological mark, as it will extend the downtrend around RM2996 (lower Bollinger band), RM2900 and RM2852 zones (76.4%FR).

However, due to oversold positions and divergence with MACD, there could be technical rebound towards RM3084 (10-d SMA), RM3163 (mid Bollinger band) and RM3263 (540% FR). A breakout above RM3263 would increase the odds of a stronger rally towards RM3300 (downtrend channel).

Daily CPO Critical Support At RM2900-RM3000 Levels
CPO 06-07-2011


Source: HLIB Research

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