Palm Oil Bull-Run in the Year of the Horse
Dear Friends & Associates,
The POC 2014 ended on a bullish note as most analysts took the weather-man approach to palm oil price forecasting. Yes, the market did react moderately to the bullish-calls.
El Nino has flashed it colours and the end is still not in sight. Cloud-seeding operations have been postponed indefinitely until the search and rescue mission for the missing MH370 jetliner is completed. El Nino’s fury would remain as the weather transits from the North-East to the South-West monsoon in late-March and extend into early May.
The weather-factor would continue to be the mover and shaker of the market in days to come.
Let us pray earnestly for the passengers.
Malaysian Palm Oil Board’s (MPOB) end-February data was indeed a bullish set of numbers. Malaysian February CPO output was down a massive 15.31% at 1.28 MT from a month ago, the lowest production recorded since April 2012. Palm oil stocks at end-February dropped to an unexpected 1.66 MT, off 14.5% from 1.94 MT previous. February’s exports stood at 1.35 MT, declining marginally by 1.25% from a month ago. We know that all these figures have already been factored into the market and discounted.
MARKET ALWAYS TRADE ON WHAT THAT IS NOT PRICED INTO MARKETS!
Strictly from a technical point of view, the bullish-cycle that started around the RM2,525 level in early-February, 2014 remains constructive despite of a few rounds of minor technical pullbacks on account of long-liquidation profit-taking. The open-interest for May futures advanced from 75,000 contracts to 89,800 contracts as at today’s close and indicated that fresh-selling in the form of hedge and speculative selling has emerged. The June futures open-interest also rose to 40,225 contracts from 23,435 contracts a day ago.
Based on the daily GM Teoh Trend-Tracker signal, the five-week old bullish-rally has finally lost it bullish impetus. The trend-tracker signal as at the close of March 12th called a sell and officially triggered the trend-change signal. In view of this current short-term negative setting, prudent bullish traders would adopt a cautious approach and dance close to the door, just in case the music suddenly stop! (see chart).
My technical crystal-ball is suggesting that we have now entered into a price correctional phase temporarily and the upward momentum would likely re-emerge if prices were to re-visit the RM2,750-RM2,700 levels.
BMD CPO JUNE FUTURES- DAILY
Attempting To Paint A Bullish Picture?
Malaysian end-February crude palm oil production was below the 1.30 MT, the lowest since April 2012. Palm Oil stocks were at their three-and-a-quarter year low! And CPO prices are at their 17-month high after testing the RM2,900 briefly two days ago.
Have we really seen the best of the bull in the first-quarter of 2014 or would the horse regain it strength and take the bull to fresh heights in the 2nd Quarter?
During Feb-May, 2013, CPO output stayed below the 1.40 MT and stocks were hovering around the 2.4 MT to 1.80 MT. Prices then struggled to stay afloat around the RM2,200-RM2,400 levels. This was a case of low production, high stocks and low price. (see ‘D’ on chart).
The Jan-April period of 2012 saw CPO output declining below the 1.30 M.T. Stocks were at record-highs at 2.06 MT-1.85 MT and despite that, CPO prices fluctuated within the RM3,200-RM3,600 range. This was then a case of low output, high stocks and high prices! (see ’C’ on chart).
M’sia Month-End Stock, Output & Price
In December 2010 t0 March 2011, CPO production was low and ranged from 1.20 MT to 1.30 MT. Palm oil stocks declined and ranged from 1.50 M.T. to 1.70 MT. CPO prices rose from RM3,700 and peaked at RM3,900. This was a low output; declining stocks and bullish price trend scenario. (see ‘B” on chart).
Presently we have a comparatively low output of 1.28 M.T. and stocks are on the decline at 1.66 M.T. at end-February. A price-high above the RM2,900 was established just two days ago. Now we are seeing some minor technical price adjustments where the market is returning some of its excessive gains.
In view of the current bullish fundamental setting, one can expect with confidence that the market’s underlying bullishness strength is still very much intact. Any downward adjustment or price weakness from here would be view as an invitation to initiate a buy-hedge or outright buy position if you are a speculator.
We had a very successful Master Trader Tutorial in K.L. A big thank-you to all of you who attended.