Has Plantation peaked?

The slowly expanding correction in the commodity complex has now reached the agricultural commodities sector. From Chart 1 below, we can see that the index for an agricultural ETF, Market Vectors Agribusiness (MOO) has been sliding off, lately. MOO, which is traded on AMEX, was launched by Van Eck Global in September 2007. It tracks a global group of 40 company stocks that are in Agribusiness. MOO is now holding at its 200-day SMA support at the 55 level.


Chart 1: MOO's daily chart as at July 8th (source: Stockcharts.com)

From Chart 2 below, we can see that CPO has also corrected back to its uptrend line (the pink line). That uptrend line will provide support for this commodity at the RM3350-3400 level. With the Bollinger Bands expanding with a slight downward bias, the outlook for CPO is not positive. Currently, CPO futures for the month of September is trading at RM3456.


Chart 2: CPO's weekly chart as at July 8th (source: ifs.marketcenter.com)

Over the past few days, we have seen some plantation stocks dropping sharply to test their March low. Asiatic, Sime & United Plantation had broken their March low, while KLK & IOI Corp came very near to their March low this morning. The March lows & this morning lows for these stocks are:

1. Asiatic [March low: RM7.10; Today's low: RM6.60]
2. Sime [March low: RM8.50; Today's low: RM8.25]
3. United [March low: RM12.70; Today's low: RM12.20]
4. IOI [March low: RM6.40; Today's low: RM6.50]
5. KLK [March low: RM14.40; Today's low: RM14.60]

From Chart 3 below, we can see that the monthly MACD & William %R indicators are giving negative readings. The MACD has hooked down sometime ago and the William %R is poised to go below the 50 level as well as breaking its uptrend support line. While we do not know when the big correction will come, we do know that when it happens, it will be very unpleasant. It is best to reduce (or, avoid adding to) our position in this sector.


Chart 3: Plantation's monthly chart as at July 8th (source: Quickcharts)