September 18 2006 (Business Times)

Long-term Trend: Bullish
Short-term Trend: Bearish; overhead resistance level at between RM1,550 - RM1,560
Momentum Index: - 118
Relative Strength Index: 36
Observations: The Kuala Lumpur CPO futures market buckled under the weight of an all-time high mountain of palm oil stocks last week.

The Malaysian Palm Oil Board, in its monthly report on palm oil trade data, cited August palm oil output, put at 1,537,236 tonnes, as far outstripping August exports, put at 1,311,427 tonnes. The upshot: end-August 2006 palm oil stocks surged an unprecedented record high of 1,684,046 tonnes.

And, as if to add salt to the wounds of erstwhile bulls, who have suffered serious financial losses since this market dropped like a lead balloon from the early-August intermediate price peak of just under the RM1,700 a tonne, Societe Generale de Surveillance (SGS) reported a shocking and sudden drop in the crop's export performance. SGS put September 1-10 exports of palm oil at 365,521 tonnes, down a whopping 104,456 tonnes, or 22.23 per cent, from that for the corresponding period in July 2006.

The market's bearish reaction to the sharp deterioration in the crop's fundamentals was to be expected. The actively-traded November 2006 contract dropped to an intra-week low of RM1,528, settling last Friday at RM1,537 for RM16, or 1.03 per cent, loss over the week.

The RM16 drop in price last week may not look like much. But if the notable bulge in the total open interest position is any guide, the worst is yet to come. That's because the rise last week of the total open interest position to a historic high level of 70,430 open contracts, in a weak market, is evidence of the initiation of new and heavy short (sell) positions - and a reflection of this market's bearish standpoint.

Conclusion: The technical indicators overall point to more price weakness ahead.

The long-term support level is RM1,510, a decisive breakdown below, which would change the hue of this market from a primary bull into a primary bear market.