Thursday, August 07, 2008

CPO outlook as at August 6th, 2008

In line with my expectation that crude oil prices may put in a rebound after testing the long-term uptrend line support of USD110, I will now take a look at the CPO market outlook. Unfortunately, I do not have accessed to a good chart on CPO prices, except for ifs.marketcenter.com (go here). As the period covered in the current chart is very narrow, I have to combine a portion of the current chart with an older chart (from here). The less-than-happy result is given below.

How to see the chart below? Your mind's eye should piece together the bigger left-hand chart with the smaller right-hand chart (guided by the marker "< A" and "A >"). From this, you can see that the strong horizontal support, at about RM2400 is coming soon. CPO Futures for October closed the morning session at RM2759.


Chart 1: CPO's weekly chart as at August 6th (source: ifs.marketcenter.com)

From Chart 2 below, we can see that Plantation index has broken below the immediate uptrend line support of 6500 three weeks ago. The next supports are the horizontal support of 5200 & 5000 as well as long-term uptrend line support of 4400-4500.


Chart 2: Plantation's weekly chart as at August 6th (source: Quickcharts)

When CPO reaches the RM2400-2500 level and the Plantation index comes nearer to the 5000-5200 level, one may look through the list of desirable plantation stocks to invest in. One stock that will feature very high on that list is Sime. From Chart 3 below, we can see that Sime has dropped from its recent high of RM13.40 in January 2008. At the closing price of RM7.15 yesterday, Sime has declined by 47% compared to a 36%-drop for Plantation index (from a high of 8949 to yesterday's close of 5033). Sime's immediate support is at RM7.00 while the very strong horizontal support thereafter is at RM6.30 level.


Chart 3: Sime's weekly chart as at August 6th (source: Quickcharts)
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2 comments:

  1. Remnant 888Thursday, August 07, 2008 11:20:00 PM

    Alex

    I've been reading your thoughts for past week. I am pretty new to investing in stock market.
    From your observation, are you advocating disposal of all CPO related counters at this time and buy later at much attractive level.?
    I'm sorry I don't follow very thoroughly your chart but I guess I get the big picture.
    Please post again the appropriate time to buy into plantation sector.

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  2. Alex LuFriday, August 08, 2008 9:31:00 AM

    Hi remnant613,

    I can understand your confusion from this post, when read together with the posts entitled "Has Plantation peaked?" dated July 9th as well as "IOI's bearish reversal sighted" dated July 18th.

    What I'm going for in this post is a oversold rally from plantation stocks, in line with a potential rebound in crude oil. In that scenario, some plantation stocks that had been sold down sharply, may put in a strong rebound. As noted, Sime has dropped by 47% and could enjoy a good bounce.

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