OBSERVATIONS: Massive short-covering saved the day for the Kuala Lumpur CPO futures market last week. But the animal in the driving seat is still a bear.
This market, along with other major world stock and commodity markets, took a dive at first, reacting last Monday to a gloomy World Bank prognosis on the world economy.
The benchmark September 2009 contract plunged at first to an intra-week low of RM2,149 following the World Bank’s forecast that the world economy will shrink 2.9 per cent in 2009 – worse than its previous forecast of a 1.7 per cent contraction.
However, this market made an impressive recovery soon enough – on massive short-covering by erstwhile short position holders as they scrambled to nail down profits. The massive short-covering activity, as evidenced by a notably huge contraction in the total interest position by 9,034 open contracts or 12.28 per cent to 64,520 open contracts over the week, was what lifted this market from the lows to a high of RM2,349 a tonne. The actively-traded September 2009 contract settled last Friday at RM2,317 a tonne, up RM32 or 1.40 per cent over the week.
The strong urge to realise profits through massive liquidation of short positions was what gave this market a technical fillip last week, not the better-than-expected but lacklustre month-to-date export performance.
Export monitors Societe Generale de Surveillance’s and Intertek Agri Services’ June 1-25 export estimates amounted to a combined average of 1,000,225 tonnes, which was better by an insignificant 2,207 tonnes or 0.29 per cent compared to that shipped out in the similar period in May.
Conclusion: There is a possibility that this market could rise further in early trade this week through extension of last week’s buying – or rather short-covering – activity. The short-term trend of this market, however, is still a bear.
The immediate and short-term overhead resistance level is RM2,375.
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