Weekend Market Updates & Analysis 27 Sept 2020
Where we are
1) The market opened higher on the 21st, and started to sell off in the afternoon throughout the whole week, and had a short covering outside up bar on Friday on some short profit taking.
2) When I was writing the last market report, prices was still very bullish and there was no indication of any strong pull back yet.
3) However, I did voice my caution with the following points in my last update. I have stated:
i. That prices for FCPO, SBO and Dalian are all testing their multiyear top of the trading range.
ii. Point 14: FCPO is in the 3rd push up of the wedge which tends to attract profit takers
iii. Point 23: Soybean’s move up is climatic and usually not sustainable
iv. Point 25, 27, 28 : Soybean Oil chart is climactic and tends to attract profit takers at the top of the trading range.
v. Point 32: Dalian Palm Olein is testing the top of the 7 year trading range, and is a wedge which tends to attract profit takers especially if we have a strengthening of the USD vs RMB.
vi. Point 53: A strengthening of the USD against RMB will damper the rally in SB/SBO
vii.Point 56: Usually after a big rally where we have a wedge pattern, and price is at a major resistance areas, we tend to see some profit.
You can read last week’s update in detail here. Weekend Market Updates & Analysis 20 Sept 2020 | CPO, Soybean, Soybean Oil & Some Currencies
My opinion of what caused the pullback
4) Note that USD started to strengthen sharply around 3pm Malaysian time, which is the open of the European market on the 21st of Sept 2020.
5) With that, a lot of markets started to sell off across the board. SBO/BO, Gold/Silver, Corn, Wheat, European Equities, China Equities, Indian Equities, Taiwan Equities, Australian Equities, USA Pre-market Futures, basically most of what instrument that has benefited from a weak dollar and had been rallying prior to that sold off.
6) As for Palm/SBO/SB, I have said that due to the continuous rally for months, there are bulls who have been long since May and are looking for reasons to book their profits.
i.With the strengthening of the Dollar and the global equities and commodities unwinding, it gave bulls a good reason to book their profits and close their position, which caused a strong pullback.
ii. As with most climatic push up that is excessive and sharp, once the selling started, selling begets more selling, and we saw 4 continuous days of selling (Monday to Thursday) and a bounce on Friday.
What’s Next?
Monthly FCPO
7) In my last update, I said that the monthly chart was in a strong bull bar, and was unlikely to turn into a bear bar.
8) However, the unlikely thing has happened and with 3 more trading days to go next week, if the bar close below the middle of the bar or near the lows, it is a bearish bar and a sell entry bar for sellers.
9) So we have to see how the bar closes next week, whether bulls can push price back higher and close above the middle of the bar, or bears can maintain prices below the middle of the bar, and close as low as possible to the low of the month.
Weekly FCPO
10) Price reversed down from the top of the multiyear trading range and closed the week as an outside down bear bar.
11) Price found some support at the lower trend line and reversed some of the down move on Friday so the week has a prominent tail below.
12) The bears would have preferred a strong close at the low of the week. A tail below shows the lack of conviction of the bears. The bear bar is a sell signal bar for next week albeit a weaker one especially near support.
13) With last week being an inside bar to this week’s outside down bar, it is possible that next week we might get another inside bar, which mean price trade in a smaller range but still within this week’s high and lows.
14) We will have to monitor if the bears get a breakout below this week’s low during next’s week price action. Since the previous trend up from the end of April is fairly strong, I suspect we should see more buyers below than sellers after the second attempt to go sideways to lower.
i. Other potential support areas below is at 2800 and at the 20ema on the weekly chart at around 2650-00 area.
Daily FCPO
15) Price reverse down strongly from the top of the trading range, and found support at the bottom of the trend line just below the 20ema.
16) Friday closed as an outside up bull bar, also an inside-outside bar with Thursday’s bear bar, and taken together, Thursday and Friday was a Down-Up reversal at the 4 month’s Trend line.
17) Bull are looking for a continuation of the bull trend following this sharp pullback. Will they get it? It will depend on a few other factors which we will look into throughout this report.
i. The bears on the other hand are looking for a second leg sideways to down after a brief bounce and for price to test around 2650-00 area.
18) This current strong pullback from the bull trend tells us that the bulls are very willing to sell at these 3100-3000 top of the multiyear trading range, and sellers are also looking to sell at these areas.
19) Usually following a strong uptrend, markets prefer to see some type of a double top before we see a proper reversal of the trend. This means that traders will be looking to see if we have a strong re-test of the recent highs of 3100 after some kind of sideways to down second leg test.
i. If we have a strong re-test of the high, traders will then see if we get another breakout to a new high and for the trend to continue.
ii. If we have a weak re-test of the highs, traders will conclude that the trend has likely ended and will be looking to sell some type of double top with the recent highs. Take note that a double top does not need to be exactly at 3100. It can higher, or lower and still be considered a double top.
Some fundamental issues effecting palm
20) i. Production is expected to be lower next month between the range of 3-8%.
ii. Expectation of more rain to hit this region which may cause flooding and may cause harvest disruption.
iii) China will be on holiday for the first 8 days of Oct. I’m still wondering the effect this will have on palm as I cannot say for sure.
iv) Some talk of labor shortage in the plantations.
Monthly Soybean
21) Soybean monthly pulled back near the high of the multiyear trading range. Currently, the bar has a prominent tail above which indicates some profit taking by the bulls and some selling from the bears but still trading slightly above the middle of the bar, which is to the bull’s favor.
22) There are 3 more trading days for Sept, and the bears wants the month to close below the middle of the bar, while the bulls want prices to bounce to close above the middle of the bar, as high as possible.
23) However, even if the bulls get a bounce in the next few days and prices close above the middle of the bar or near the high of the month, price is currently trading near the top of the multiyear trading range, and the bulls have been long since May/June and if price stalls at the top of the trading range, we will likely see more profit taking from the bulls and the bears coming out to sell.
i. We need to monitor this in conjuction with the Dollar’s move also as I will explain more below.
Soybean Weekly
24) Soybean weekly closed as a bear inside bar. This is the first bear bar following a tight 6 bull micro channel which indicated very strong buying prior to this pullback. Take note that the bears was not able to close the weekly bar below the low of last week, which indicated the bears are not as strong as they would have preferred.
26) Because it is a bear bar closing near it’s low, it is a bear signal bar for next week. So bear will likely try to push prices below the low of this week. However, because this is the first bear bar following a tight bull microchannel, we will likely find more buyers than sellers below the bar.
i. I will be monitoring the levels 988 and 940 area as support levels.
Daily Soybean
27) This is the first major pullback for Soybean on the daily chart since the first week of August. It was in a 1.5 months of climactic bull parabolic wedge test of the top of the multiyear trading range and prices is currently pulling back to its 20ema around 990.
28) Because the upmove was so strong, we should expect traders to buy this pullback once it is over. Support areas that I am looking at is around 988 and 940 area.
i. Take note that the bears are looking for a second leg down from here after a brief bounce, and will likely get it next week.
29) Usually for trend to reverse, it has to have some kind of major trend reversal pattern, meaning prices would have to have some kind of re-rest of the highs and make some type of double top. So traders will be looking at the strength of the re-test of the highs after this pullback is over.
30) If the re-test of the highs is strong, bulls want prices to breakout of the top of the multi year trading range. However, we also have to look at how the USD is trading in relation to SB. If the Dollar continues to strengthen, then price may stall again and turn down lower. If instead we see the Dollar turn down lower, then it will be supportive for SB prices and traders will look to see if price can break above the top of the multi year trading range.
Monthly Soybean Oil
31) Monthly SBO turned down lower near the high of the multiyear trading range. The monthly bar currently is a doji bar. With 3 trading days left in the month, the bears wants the bar to close near the low below the open so that the month will have a bear body with a big tail above, which is a reversal bar and a signal bar for lower prices in Oct.
32) The bulls on the other hand wants prices to reverse up in the next 3 trading day so that it can close back above the middle of the bar so that it would not be too bearish for Oct.
33) Should the bears fail to create a strong bear close for the month, but price still close below the middle of the month, it is still a sell signal bar for Oct, but a weak one, especially because prices followed a 4 bull micro channel since May and we may find more buyers than sellers below Sept lows at suport areas.
i. I will be looking at around 31 and 29 area as support levels.
Weekly Soybean Oil
34) Soybean Weekly closed as a big bear bar, but with a prominent tail below. This is the first major bear bar since the end of April, which is the first time since then that the bears was able to create any significant selling pressure.
35) However, this bear bar came following a tight bull channel which lasted 4+ months. So we are likely to see more buyers than sellers below the low of thus bear bar at support levels.
36) As I have written previously, unless prices went up in a climactic fashion too excessingly which will cause a very strong reversal, prices usually has to go sideways into a trading range before it will create a proper reversal.
37) This means that we will likely see an attempt to re-test the highs made in in Sept moving forward after this pullback is over. Traders will be looking at the strength of the re-test, whether the buying pressure is strong, or weak and choppy.
i. Take note that the bears are looking for a second leg down after a brief bounce and chances are they will likely get it in the next 1-2 weeks.
38) After the pullback is completed, if the re-test is weak and choppy, and stalls before reaching the highs, traders will conclude that the trend is over and prices will reverse at a lower high or at some sort of double top.
39) It is also important to monitor where the Dollar is trading moving forward. A weaker Dollar will be supportive for SBO prices while a stronger Dollar will likely bring out the bears and cause the bulls to book their profits.
Monthly Dalian Palm Olein
40) So far the monthly chart for palm olein reversed down and is trading close to the lower end of the month’s range with a prominent tail above. Prices reversed lower near the top of the multiyear trading range as the Dollar strengthened.
41) With 3 more trading days to go, and the market closing for the first 8 days of Oct, I will skip this chart until the market reopens again.
Weekly Dalian Palm Olein
41) The weekly bar closed as a bear bar, the first major bear bar near the top of the multi year trading range.
42) Since this market will be closing for the first 8 days of Oct, I will skip this chart until the market reopens again.
Daily Dalian Palm Olein
43) Prices sold off neat the top of the multiyear trading range following a wedge 3 push up pattern.
44) Since this market will be closing for the first 8 days of Oct, I will skip this chart until the market reopens again.
Monthly Dollar Index – DXY
45) Currently, the monthly bar for the Dollar is a strong bull bar after a failed breakout below the low of Aug.
46) With another 3 trading days to go, the bulls wants to maintain a strong close where prices close near the high of the months. The bears on the other hand wants the opposite and wants prices to close to the middle or at least below the middle of the month so that they can reduce some of the bullishness.
47) Should the bulls get that they want and prices close near the high of the month, we should see at least slightly higher prices next month. There is a resistance magnet above at 95.00 which is the weekly 20ema and price may test there first before deciding if it will continue higher or reverse back lower.
48) A stronger dollar is bearish for SB/SBO/Palm which a weaker dollar is supportive for the grains and palm.
Weekly Dollar Index – DXY
49) Price closed as a big bull bar on the weekly dollar chart so we should see slight higher prices next week. Price is currently heading towards the 95.00 level which is the 20ema and that price is a magnet and target for the bulls. We may not see any significant selling until we reach there.
50) We are currently in the second leg of the bull bounce which is what most traders expect. Sometimes prices can extend to a 3rd leg, which means we may see a brief pullback in the next 1 weeks, and then a resumption up to try to break above the 95-96 area.
i. And should price fail to break strongly above the 95-96 area after the 3rd leg up, traders will assume that the bounce is just a 2 legged or a wedge bounce and sell the lower high.
51) In my last update, I have said that the Dollar looks like it is still in its second led down since March, which means we may see another leg down to test the recent low areas of 92-93 levels first, and if manage to break it, then 89-90 in the weeks/months ahead.
52) We need to follow the development of the Dollar closely as SB/SBO/Palm is currently trading inversely to the Dollar. A weaker Dollar is supportive for prices of commodities such as SB/SBO/Palm and vice versa.
Daily Dollar Index – DXY
53) On the daily chart, the Dollar is in a 6 bar tight bull channel which is signs of strong buying. This means that should we see a brief pullback next week, there should be more buyers than sellers and they will buy that first pullback. We should see slightly higher prices as traders will buy the pullback for a 3rd leg up.
54) However, do note that there is a magnet and resistance above for the Dollar around 95-96 area. Should price test that area, and stalls, traders will assume this 3 legged wedge bounce is just a bear rally, and will sell the bounce for a 3rd leg down to test 92-93 level, then 89-90 level in the weeks ahead.
55) Also note that the current price at 94.50 is at the bear trend line (not drawn) and if price can’t break above this trend line, traders will assume that this is just a bear rally, and will sell the Dollar for another leg down to retest support areas.
56) So we need to follow closely how the Dollar is developing moving forward as a weaker Dollar is supportive for prices of commodities such as SB/SBO/Palm and vice versa.
Summary
57) So far, this is the first strong selling pressure since the end of April for FCPO.
58) The bears are looking for a second leg sideways to down after a brief bounce in the next 1-2 weeks.
i. I’m looking at this 2800 and 2650-00 as potential support levels.
ii. After the pullback is over, we should see an attempt to retest the highs.
iii. The manner of the re-test will give us a lot of information about prices moving forward.
iv. A strong re-test of the highs indicate that the strong selling was merely a pullback in the overall trend and;
v. Should we also get a weakening Dollar moving forward, traders will expect higher prices.
i. However, if we see a lackluster re-test of the highs with choppy trading and weak buying pressure, and at the same time, the Dollar continues to strengthen, then we have to be careful because we may see more bulls close their longs and as price re-test higher and bears starting to scale into their shorts towards the high of the trading range.
59) Can prices for palm continue to trade low continuously next week?
i. I think the odds are that the bears will get their second leg down after a brief bounce.
ii. I will be looking if this 2800 area holds, and if not, for next support around 2650-00 area.
60) I’m more of the view that prices will trade lower for a second leg down first, and then attempt a re-test of the highs after testing support.
i. Is there a scenario where price does not have the second leg down, and price just continue to bounce from here to re-test the highs?
ii. The answer is yes, but slightly less probable. If this happens, then the trend will likely continue much higher as the bears will assume the strong bull trend is resuming and the bull will regain control of the market again.
61) For now, this is what I will be monitoring in the next few weeks
i. If the second leg down for the bears happen as odds highly favor it, and if it does, whether the 2800 area can hold, and if not, if 2650-00 area can hold.
ii. For Dollar to consolidate around the 93.50-94.50, and then attempt to test then 95-96 level, which will be the 3rd leg up. If prices does not continue to strengthen from there, sellers will sell this wedge bounce as a bear rally for price to re-test the recent low’s of 92-93 and then 89-90.
iii. After the second leg down is completed, I will be looking for FCPO to attempt to re-test the highs and the manner in which it re-test will tell us a lot about prices moving forward. A strong re-test signals higher prices moving forward.
vi. There is talk about lower production and also rain coming which will effect the production of FFB. So should this materialize, we will see the production of FFB severely effected which is supportive for prices especially as the current stock level is not particularly high.
v. As for exports, I’m still unsure the effect of China being on holiday and the effects it will have on demand. However with Deepavali coming in Nov, we should see some buying from India taking advantage of the recent lower prices.
62) Can prices break strongly above 3150-3200 in Oct/Nov/Dec which is also the top of the multiyear trading range?
i. There is a chance of that happening especially if the USD weaken considerably and trades down to 89-90 area.
ii. We also have to keep in mind that most breakout fails within a few bars so even though prices may break above the 3150-3200 range and trade higher, there is also a 50% possibility that the breakout will fail, especially if we have a stronger dollar during that period of time. So we have to monitor this closely.
iii. The chance of us getting a strong re-test of the highs moving forward will also increase if the production in Oct is seriously hampered by constant rain and flooding which causes lower production.
63) Another thing I would like to point out is this: Is it possible that we see a stronger dollar, which be bearish for prices for SB/SBO/Palm, but instead we still see slightly higher prices for CPO?
i. Yes it is also possible that the global macro factor be bearish, but due to local factors such as our ffb production falling severely due to seasonal lower production or flooding effecting production, our local market may diverge from the global and related market trends.
ii. A good example of this was earlier in Sept where the global market sold off, while SB/SBO/Palm was still holding on.
iii. Ideally, we would like to see all the factors are aligned, but you may not always get that. So I think it is prudent for us to monitor all of the factors as a whole from the Macro factors effecting prices globally such as the USD, SB/SBO to the Micro factors effecting our local markets (such as production, weather, export, demand) individually.
iv. Markets tend to have periods of strong co-relation but also periods of divergences.
64) I will be monitoring the market accordingly to these parameters that I have laid out above. Should there be any major changes, I will update accordingly in a new post.
Thanks and please get in touch if you would like to leave a feedback.
Thanks and trade safe.
Best Regards,
Andrew (Tech Trader)
Where we are
1) The market opened higher on the 21st, and started to sell off in the afternoon throughout the whole week, and had a short covering outside up bar on Friday on some short profit taking.
2) When I was writing the last market report, prices was still very bullish and there was no indication of any strong pull back yet.
3) However, I did voice my caution with the following points in my last update. I have stated:
i. That prices for FCPO, SBO and Dalian are all testing their multiyear top of the trading range.
ii. Point 14: FCPO is in the 3rd push up of the wedge which tends to attract profit takers
iii. Point 23: Soybean’s move up is climatic and usually not sustainable
iv. Point 25, 27, 28 : Soybean Oil chart is climactic and tends to attract profit takers at the top of the trading range.
v. Point 32: Dalian Palm Olein is testing the top of the 7 year trading range, and is a wedge which tends to attract profit takers especially if we have a strengthening of the USD vs RMB.
vi. Point 53: A strengthening of the USD against RMB will damper the rally in SB/SBO
vii.Point 56: Usually after a big rally where we have a wedge pattern, and price is at a major resistance areas, we tend to see some profit.
You can read last week’s update in detail here. Weekend Market Updates & Analysis 20 Sept 2020 | CPO, Soybean, Soybean Oil & Some Currencies
My opinion of what caused the pullback
4) Note that USD started to strengthen sharply around 3pm Malaysian time, which is the open of the European market on the 21st of Sept 2020.
5) With that, a lot of markets started to sell off across the board. SBO/BO, Gold/Silver, Corn, Wheat, European Equities, China Equities, Indian Equities, Taiwan Equities, Australian Equities, USA Pre-market Futures, basically most of what instrument that has benefited from a weak dollar and had been rallying prior to that sold off.
6) As for Palm/SBO/SB, I have said that due to the continuous rally for months, there are bulls who have been long since May and are looking for reasons to book their profits.
i.With the strengthening of the Dollar and the global equities and commodities unwinding, it gave bulls a good reason to book their profits and close their position, which caused a strong pullback.
ii. As with most climatic push up that is excessive and sharp, once the selling started, selling begets more selling, and we saw 4 continuous days of selling (Monday to Thursday) and a bounce on Friday.
What’s Next?
Monthly FCPO
7) In my last update, I said that the monthly chart was in a strong bull bar, and was unlikely to turn into a bear bar.
8) However, the unlikely thing has happened and with 3 more trading days to go next week, if the bar close below the middle of the bar or near the lows, it is a bearish bar and a sell entry bar for sellers.
9) So we have to see how the bar closes next week, whether bulls can push price back higher and close above the middle of the bar, or bears can maintain prices below the middle of the bar, and close as low as possible to the low of the month.
Weekly FCPO
10) Price reversed down from the top of the multiyear trading range and closed the week as an outside down bear bar.
11) Price found some support at the lower trend line and reversed some of the down move on Friday so the week has a prominent tail below.
12) The bears would have preferred a strong close at the low of the week. A tail below shows the lack of conviction of the bears. The bear bar is a sell signal bar for next week albeit a weaker one especially near support.
13) With last week being an inside bar to this week’s outside down bar, it is possible that next week we might get another inside bar, which mean price trade in a smaller range but still within this week’s high and lows.
14) We will have to monitor if the bears get a breakout below this week’s low during next’s week price action. Since the previous trend up from the end of April is fairly strong, I suspect we should see more buyers below than sellers after the second attempt to go sideways to lower.
i. Other potential support areas below is at 2800 and at the 20ema on the weekly chart at around 2650-00 area.
Daily FCPO
15) Price reverse down strongly from the top of the trading range, and found support at the bottom of the trend line just below the 20ema.
16) Friday closed as an outside up bull bar, also an inside-outside bar with Thursday’s bear bar, and taken together, Thursday and Friday was a Down-Up reversal at the 4 month’s Trend line.
17) Bull are looking for a continuation of the bull trend following this sharp pullback. Will they get it? It will depend on a few other factors which we will look into throughout this report.
i. The bears on the other hand are looking for a second leg sideways to down after a brief bounce and for price to test around 2650-00 area.
18) This current strong pullback from the bull trend tells us that the bulls are very willing to sell at these 3100-3000 top of the multiyear trading range, and sellers are also looking to sell at these areas.
19) Usually following a strong uptrend, markets prefer to see some type of a double top before we see a proper reversal of the trend. This means that traders will be looking to see if we have a strong re-test of the recent highs of 3100 after some kind of sideways to down second leg test.
i. If we have a strong re-test of the high, traders will then see if we get another breakout to a new high and for the trend to continue.
ii. If we have a weak re-test of the highs, traders will conclude that the trend has likely ended and will be looking to sell some type of double top with the recent highs. Take note that a double top does not need to be exactly at 3100. It can higher, or lower and still be considered a double top.
Some fundamental issues effecting palm
20) i. Production is expected to be lower next month between the range of 3-8%.
ii. Expectation of more rain to hit this region which may cause flooding and may cause harvest disruption.
iii) China will be on holiday for the first 8 days of Oct. I’m still wondering the effect this will have on palm as I cannot say for sure.
iv) Some talk of labor shortage in the plantations.
Monthly Soybean
21) Soybean monthly pulled back near the high of the multiyear trading range. Currently, the bar has a prominent tail above which indicates some profit taking by the bulls and some selling from the bears but still trading slightly above the middle of the bar, which is to the bull’s favor.
22) There are 3 more trading days for Sept, and the bears wants the month to close below the middle of the bar, while the bulls want prices to bounce to close above the middle of the bar, as high as possible.
23) However, even if the bulls get a bounce in the next few days and prices close above the middle of the bar or near the high of the month, price is currently trading near the top of the multiyear trading range, and the bulls have been long since May/June and if price stalls at the top of the trading range, we will likely see more profit taking from the bulls and the bears coming out to sell.
i. We need to monitor this in conjuction with the Dollar’s move also as I will explain more below.
Soybean Weekly
24) Soybean weekly closed as a bear inside bar. This is the first bear bar following a tight 6 bull micro channel which indicated very strong buying prior to this pullback. Take note that the bears was not able to close the weekly bar below the low of last week, which indicated the bears are not as strong as they would have preferred.
26) Because it is a bear bar closing near it’s low, it is a bear signal bar for next week. So bear will likely try to push prices below the low of this week. However, because this is the first bear bar following a tight bull microchannel, we will likely find more buyers than sellers below the bar.
i. I will be monitoring the levels 988 and 940 area as support levels.
Daily Soybean
27) This is the first major pullback for Soybean on the daily chart since the first week of August. It was in a 1.5 months of climactic bull parabolic wedge test of the top of the multiyear trading range and prices is currently pulling back to its 20ema around 990.
28) Because the upmove was so strong, we should expect traders to buy this pullback once it is over. Support areas that I am looking at is around 988 and 940 area.
i. Take note that the bears are looking for a second leg down from here after a brief bounce, and will likely get it next week.
29) Usually for trend to reverse, it has to have some kind of major trend reversal pattern, meaning prices would have to have some kind of re-rest of the highs and make some type of double top. So traders will be looking at the strength of the re-test of the highs after this pullback is over.
30) If the re-test of the highs is strong, bulls want prices to breakout of the top of the multi year trading range. However, we also have to look at how the USD is trading in relation to SB. If the Dollar continues to strengthen, then price may stall again and turn down lower. If instead we see the Dollar turn down lower, then it will be supportive for SB prices and traders will look to see if price can break above the top of the multi year trading range.
Monthly Soybean Oil
31) Monthly SBO turned down lower near the high of the multiyear trading range. The monthly bar currently is a doji bar. With 3 trading days left in the month, the bears wants the bar to close near the low below the open so that the month will have a bear body with a big tail above, which is a reversal bar and a signal bar for lower prices in Oct.
32) The bulls on the other hand wants prices to reverse up in the next 3 trading day so that it can close back above the middle of the bar so that it would not be too bearish for Oct.
33) Should the bears fail to create a strong bear close for the month, but price still close below the middle of the month, it is still a sell signal bar for Oct, but a weak one, especially because prices followed a 4 bull micro channel since May and we may find more buyers than sellers below Sept lows at suport areas.
i. I will be looking at around 31 and 29 area as support levels.
Weekly Soybean Oil
34) Soybean Weekly closed as a big bear bar, but with a prominent tail below. This is the first major bear bar since the end of April, which is the first time since then that the bears was able to create any significant selling pressure.
35) However, this bear bar came following a tight bull channel which lasted 4+ months. So we are likely to see more buyers than sellers below the low of thus bear bar at support levels.
36) As I have written previously, unless prices went up in a climactic fashion too excessingly which will cause a very strong reversal, prices usually has to go sideways into a trading range before it will create a proper reversal.
37) This means that we will likely see an attempt to re-test the highs made in in Sept moving forward after this pullback is over. Traders will be looking at the strength of the re-test, whether the buying pressure is strong, or weak and choppy.
i. Take note that the bears are looking for a second leg down after a brief bounce and chances are they will likely get it in the next 1-2 weeks.
38) After the pullback is completed, if the re-test is weak and choppy, and stalls before reaching the highs, traders will conclude that the trend is over and prices will reverse at a lower high or at some sort of double top.
39) It is also important to monitor where the Dollar is trading moving forward. A weaker Dollar will be supportive for SBO prices while a stronger Dollar will likely bring out the bears and cause the bulls to book their profits.
Monthly Dalian Palm Olein
40) So far the monthly chart for palm olein reversed down and is trading close to the lower end of the month’s range with a prominent tail above. Prices reversed lower near the top of the multiyear trading range as the Dollar strengthened.
41) With 3 more trading days to go, and the market closing for the first 8 days of Oct, I will skip this chart until the market reopens again.
Weekly Dalian Palm Olein
41) The weekly bar closed as a bear bar, the first major bear bar near the top of the multi year trading range.
42) Since this market will be closing for the first 8 days of Oct, I will skip this chart until the market reopens again.
Daily Dalian Palm Olein
43) Prices sold off neat the top of the multiyear trading range following a wedge 3 push up pattern.
44) Since this market will be closing for the first 8 days of Oct, I will skip this chart until the market reopens again.
Monthly Dollar Index – DXY
45) Currently, the monthly bar for the Dollar is a strong bull bar after a failed breakout below the low of Aug.
46) With another 3 trading days to go, the bulls wants to maintain a strong close where prices close near the high of the months. The bears on the other hand wants the opposite and wants prices to close to the middle or at least below the middle of the month so that they can reduce some of the bullishness.
47) Should the bulls get that they want and prices close near the high of the month, we should see at least slightly higher prices next month. There is a resistance magnet above at 95.00 which is the weekly 20ema and price may test there first before deciding if it will continue higher or reverse back lower.
48) A stronger dollar is bearish for SB/SBO/Palm which a weaker dollar is supportive for the grains and palm.
Weekly Dollar Index – DXY
49) Price closed as a big bull bar on the weekly dollar chart so we should see slight higher prices next week. Price is currently heading towards the 95.00 level which is the 20ema and that price is a magnet and target for the bulls. We may not see any significant selling until we reach there.
50) We are currently in the second leg of the bull bounce which is what most traders expect. Sometimes prices can extend to a 3rd leg, which means we may see a brief pullback in the next 1 weeks, and then a resumption up to try to break above the 95-96 area.
i. And should price fail to break strongly above the 95-96 area after the 3rd leg up, traders will assume that the bounce is just a 2 legged or a wedge bounce and sell the lower high.
51) In my last update, I have said that the Dollar looks like it is still in its second led down since March, which means we may see another leg down to test the recent low areas of 92-93 levels first, and if manage to break it, then 89-90 in the weeks/months ahead.
52) We need to follow the development of the Dollar closely as SB/SBO/Palm is currently trading inversely to the Dollar. A weaker Dollar is supportive for prices of commodities such as SB/SBO/Palm and vice versa.
Daily Dollar Index – DXY
53) On the daily chart, the Dollar is in a 6 bar tight bull channel which is signs of strong buying. This means that should we see a brief pullback next week, there should be more buyers than sellers and they will buy that first pullback. We should see slightly higher prices as traders will buy the pullback for a 3rd leg up.
54) However, do note that there is a magnet and resistance above for the Dollar around 95-96 area. Should price test that area, and stalls, traders will assume this 3 legged wedge bounce is just a bear rally, and will sell the bounce for a 3rd leg down to test 92-93 level, then 89-90 level in the weeks ahead.
55) Also note that the current price at 94.50 is at the bear trend line (not drawn) and if price can’t break above this trend line, traders will assume that this is just a bear rally, and will sell the Dollar for another leg down to retest support areas.
56) So we need to follow closely how the Dollar is developing moving forward as a weaker Dollar is supportive for prices of commodities such as SB/SBO/Palm and vice versa.
Summary
57) So far, this is the first strong selling pressure since the end of April for FCPO.
58) The bears are looking for a second leg sideways to down after a brief bounce in the next 1-2 weeks.
i. I’m looking at this 2800 and 2650-00 as potential support levels.
ii. After the pullback is over, we should see an attempt to retest the highs.
iii. The manner of the re-test will give us a lot of information about prices moving forward.
iv. A strong re-test of the highs indicate that the strong selling was merely a pullback in the overall trend and;
v. Should we also get a weakening Dollar moving forward, traders will expect higher prices.
i. However, if we see a lackluster re-test of the highs with choppy trading and weak buying pressure, and at the same time, the Dollar continues to strengthen, then we have to be careful because we may see more bulls close their longs and as price re-test higher and bears starting to scale into their shorts towards the high of the trading range.
59) Can prices for palm continue to trade low continuously next week?
i. I think the odds are that the bears will get their second leg down after a brief bounce.
ii. I will be looking if this 2800 area holds, and if not, for next support around 2650-00 area.
60) I’m more of the view that prices will trade lower for a second leg down first, and then attempt a re-test of the highs after testing support.
i. Is there a scenario where price does not have the second leg down, and price just continue to bounce from here to re-test the highs?
ii. The answer is yes, but slightly less probable. If this happens, then the trend will likely continue much higher as the bears will assume the strong bull trend is resuming and the bull will regain control of the market again.
61) For now, this is what I will be monitoring in the next few weeks
i. If the second leg down for the bears happen as odds highly favor it, and if it does, whether the 2800 area can hold, and if not, if 2650-00 area can hold.
ii. For Dollar to consolidate around the 93.50-94.50, and then attempt to test then 95-96 level, which will be the 3rd leg up. If prices does not continue to strengthen from there, sellers will sell this wedge bounce as a bear rally for price to re-test the recent low’s of 92-93 and then 89-90.
iii. After the second leg down is completed, I will be looking for FCPO to attempt to re-test the highs and the manner in which it re-test will tell us a lot about prices moving forward. A strong re-test signals higher prices moving forward.
vi. There is talk about lower production and also rain coming which will effect the production of FFB. So should this materialize, we will see the production of FFB severely effected which is supportive for prices especially as the current stock level is not particularly high.
v. As for exports, I’m still unsure the effect of China being on holiday and the effects it will have on demand. However with Deepavali coming in Nov, we should see some buying from India taking advantage of the recent lower prices.
62) Can prices break strongly above 3150-3200 in Oct/Nov/Dec which is also the top of the multiyear trading range?
i. There is a chance of that happening especially if the USD weaken considerably and trades down to 89-90 area.
ii. We also have to keep in mind that most breakout fails within a few bars so even though prices may break above the 3150-3200 range and trade higher, there is also a 50% possibility that the breakout will fail, especially if we have a stronger dollar during that period of time. So we have to monitor this closely.
iii. The chance of us getting a strong re-test of the highs moving forward will also increase if the production in Oct is seriously hampered by constant rain and flooding which causes lower production.
63) Another thing I would like to point out is this: Is it possible that we see a stronger dollar, which be bearish for prices for SB/SBO/Palm, but instead we still see slightly higher prices for CPO?
i. Yes it is also possible that the global macro factor be bearish, but due to local factors such as our ffb production falling severely due to seasonal lower production or flooding effecting production, our local market may diverge from the global and related market trends.
ii. A good example of this was earlier in Sept where the global market sold off, while SB/SBO/Palm was still holding on.
iii. Ideally, we would like to see all the factors are aligned, but you may not always get that. So I think it is prudent for us to monitor all of the factors as a whole from the Macro factors effecting prices globally such as the USD, SB/SBO to the Micro factors effecting our local markets (such as production, weather, export, demand) individually.
iv. Markets tend to have periods of strong co-relation but also periods of divergences.
64) I will be monitoring the market accordingly to these parameters that I have laid out above. Should there be any major changes, I will update accordingly in a new post.
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Thanks and trade safe.
Best Regards,
Andrew (Tech Trader)