3rd Nov, 2014
Dear Friends & Associates,
It was indeed a well-defined six-month bearish rally that took CPO prices from its early-March, 2014 highs of RM2,910 per tonne to a five-year and decline-low of RM1,914 on 5th September 2014.
It was like pressing a water polo ball down to the bottom of a swimming pool. When the pressure was lifted, the ball simple rebounded to the surface.
During the course of this lengthy negative market downtrend and the subsequent technical price rebound, the very consistent G.M.Teoh Trend-Tracker (GMT T.T) provided two very solid trading signals and helped hedgers project the price trend accurately.
A clear-cut sell-signal was given on week-ending 21st March, 2014 and that was followed much later by a powerful buy-signal on week ending 12th Sept, 2014. We have so far witnessed a nine-week price rebound-rally that lifted CPO prices RM397 from its sell-down lows.(please see chart)
As at last Friday’s close, both the daily and weekly GMT Trend-Tracker maintained their buy-signals and remains positive for the price trend and suggested that the upward price momentum would continue in the near term.
BMD CRUDE PALM OIL FUTURES – JAN 2015 Futures, Weekly Chart
Be assured that in the event of any change in trading-signal call from the GMT T.T., you shall be inform accordingly in our next Palm Oil Price Outlook report.
The GMT T.T. also gave the same clear trading signals for the CME soyoil futures. (please see chart).
Our amazingly awesome GMT T.T. was designed to cut out market noise and help traders indentify the true market trend to enhance their hedging and trading activities. Students of our Palm Oil Master-Trader’s Tutorial (MTT) have indeed benefited greatly from this time-tested algorithm trading system.
Let’s us take a good look at the realities of the market.
The weekly volume swelled towards the tail-end of the downtrend and continued to expand into early-September as prices advanced. Meanwhile, the overall open-interest or the size of the market, hit an exchange-high above 330,000 contracts (8.25 million tonnes) in early-September and continued its decline to 272,364 contracts as at Friday’s close. The most actively traded January futures open-interest dropped from a peak of 96,912 contracts to 59,469 contracts last Friday.
The overall open-interest may be lower by now because the Exchange Clearing House continues to allow trade players to keep both their liquidated long and short contracts as open contracts in the Clearing House books!
Recent negative cash-flow suggested that the nine-week price rally was actually the result of short-hedges liquidation and speculative short-covering. At the same time, the long-hedges unwinded too along with speculative marathon-bulls closing out positions. In most instances, a price rally where the cash flow is negative, the upside potential is limited. Once the technical buying or short-covering strength is over, the market invariably would retrace its direction with the law of gravity taking over and forcing prices to re-visit some its earlier lower traded levels.
CME SBO FUTURES Dec 2014 – Weekly Chart
We know that most analysts are sincere and they can be sincerely wrong!
We know that the price differential between soyoil and palm oil had narrow drastically and the spread would once again widen in days ahead.
Indonesia mimicked the Malaysian export-duty structure and would continue to do so in the current competitive export environment.
Indonesia’s monthly output, stocks and exports would remain a mystery and we shall have to continue to guess.
In 2014, Malaysian CPO entered into its yearly-high crop output in July and hit a year high of 2.631 million tonnes in September. Stocks surge in August and ended September at 2.089 million tonnes. (please see chart on Malaysian CPO output, stocks and prices)
In 2013, CPO output peaked the year in October at 1.972 million tonnes while stocks held high slightly below the 2 million tonnes till end-January 2014.
Similarly, in 2012, the high production months started in July and peaked in September. Stocks were high from July right into March of 2013.
Our guess is that CPO output may not tapper off too sharply from now till at least December 2014. Palm oil month-end stocks would continue to remain high for another two to three months.
MONTHLY M’SIAN CPO OUTPUT,STOCKS & PRICE
We know that large palm oil importers, China and India had covered their nearby needs during the recent price weakness. With some believing that they have also covering a large portion of their far forward needs and they are not expected to panic in the event of a price surge in the immediate term.
We know that the weak and falling crude oil prices have diminished crude palm oil appeal as alternative fuel.
Malaysia’s mandate to increase palm oil content in diesel fuel from 5% to 7% this month would only reduce 700,000 tonnes annually from the stockpile .
Market always trade on what that is not priced into markets.
The MPOB monthly data are due for release on 10th November. The price action over the next few days need to be monitored closely as it would reflect the thinking of large traders. Near-term scenario would turn negative in the event of a large price pullback prior to the report.
Presently, there is upside price-target at the RM2,350-RM2,375 levels. Should the underlying strength of the market stays strong, these technical price-hurdles are expected to be tested in the immediate term.
A word of caution. As traders, it is our sole responsibility to prepare for the worst case scenario. For the coming days and weeks, we would continue to depend on our GMT T.T. to provide the leads on the market’s duration and direction, by definition the trend.
Kindly be inform that the next Master Trader Tutorial (Palm Oil) would be held in Kuala Lumpur on 27th & 28th February, 2015. (Immediately before the POC2015 Palm & Lauric Oils Price Outlook Conference in Kuala Lumpur). New students are welcome.
Past students who wish to do a re-attendance tutorial are welcome. A special fees would apply.
Further information and registration can be obtain from our web: www.palmoil-mtt.com
Contact: 012 268 8121