Technical | Fundamental Analysis Discussion Stocks Listed In Bursa

Monday, July 6, 2009

Catching The CPO Knife

After touching a short term peak of 2,710 on the 13thof May, Crude Palm Oil (CPO) then proceeded to correct a significant 19.7% to close at 2,175 last Friday. Where will it go from here?

Potentially positive Technical sign : The Hammer pattern
A potentially bullish reversal candlestick pattern appeared in the CPO charts last Friday’s trading session saw CPO prices touching a low of 2,085 which was then followed by a powerful intraday force, pushing CPO prices upwards by a huge 90 points to reverse the earlier losses and close at the neutral level of 2,175. Such a significant intraday force which was partially engineered by the strong support of 2,150, has produced a bullish reversal Hammer candlestick pattern on the charts. We still remain cautious as the Hammer pattern would require a confirmation signal in the form of a long white candle in the days ahead which would signify a change of direction from downwards to upwards.

How to trade this pattern?
Traders should be looking for a “long”trade on CPO should the bullish reversal pattern be confirmed. The tricky part would be looking for a desirable setup that would limit any trading downside and ensure a high-probability upside.

We are setting two criteria for a “long”CPO trade setup. Firstly, the highly correlated Chicago Board of Trade (CBOT) Soybean oil should be positive and also reversing course from a downtrend to an upward trend. Soybean oil prices, as explained in the next page, may have possibly reversed coursealready last Thursday. Secondly, we need a white confirmation candle in the CPO charts to confirm the hammer reversal pattern. If this setup materializes,traders would be advised to take “long”positions to trade the possible new CPO uptrend. Alternatively, traders can also look for short term long trades on CPO stocks to ride the possible CPO uptrend.

CBOT Soybean Oil
Soybean Oil prices produced an ambiguous Hammer Candlestick pattern last Thursday. Unlike an actual Hammer pattern which is white in color, Soybean oil’s Thursday Hammer pattern is a black candle, which is less pronounced and weaker than a white Hammer. However, the Hammer pattern seems to have done the trick and stem Soybean oil’s slide for now. Another long white candle in the days ahead would confirm that Soybean oil has already reversed course from downwards to upwards. A new upward trend in Soybean oil would increase the likelihood of a bullish reversal in CPO prices.

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