CPO has returned above its uptrend line

CPO has managed to climb back above its uptrend line at RM3300. If CPO can go above the RM3450 level, the Parabolic SAR will move below the price, thus a BUY signal will be generated. An example of a BUY signal generated by Parabolic SAR can be seen in early February. On the other hand, when the Parabolic SAR moved above the price in early March, a SELL signal was generated.

Parabolic SAR is more popular for setting stops than for establishing direction or trend. If the trend is up, buy when the indicator moves below the price. If the trend is down, sell when the indicator moves above the price. For more on Parabolic SAR, go here.


Chart : CPO's daily chart as at April 4, 2008 (source: ifs.marketcenter.com)

A recovery in CPO prices will certainly be positive for plantation stocks, which had taken a good beating last week.

You can learn more about the outlook for commodities from a recent interview given by Amanda Lee, the commodities analyst with Deutsche Bank Group to FinanceAsia (here). She has this to say about the prices of agricultural commodities:

"...we forecast prices across the agricultural complex to bounce back strongly, reflecting high underlying demand as the fight to feed people, cattle and cars intensifies against a backdrop of global land and water constraints. Inventory to consumption ratios for agriculture are at or close to multi-decade lows and likely to remain this way in the medium term.

However, any correction will be short-lived in our view... The rally in agricultural commodities also appears to be in its infancy. Our research shows that compared to previous bull cycles, which were not backed by such significant demand drivers as China and India, prices in real terms are still a long way from their highs. Sugar, coffee, cocoa and corn are particularly cheap.

We believe prices across the agricultural complex will bounce back strongly after the recent sell-off. This reflects the strength in underlying agricultural demand and inventory to consumption ratios at, or close to, multi-decade lows."

Deutsche Bank's view is certainly very bullish. I am not sure that the current correction has run its full course. Nevertheless, if CPO can surplass the RM3450 level & the Parabolic SAR were to signal a BUY for CPO, I believe plantation stock will rally upward again.