Plantation stocks- time to take some profit

Yesterday, we saw a few plantation stocks rallied strongly. Among the top gainers were NSOP, Glenealy, RSawit & TDM. As a result, we can see the Plantation index rising to its immediate resistance at the horizontal line 7880. See Chart 1 below.


Chart 1: Plant's daily chart as at June 8, 2011_10.30am (Source: Quickcharts)

However, CPO prices have been dropping for the past 2 weeks which is contrary to the movement in plantation stocks. We can see from Chart 2 below that CPO tested the upside of the triangle where it consolidated in April. As at 11.00am this morning, CPO futures for July was trading at RM3343, which means that CPO has dropped back into the triangle; thus negating the bullish breakout in May. Unless a quick rebound set in, CPO's upleg would be deemed to have been aborted & it would lead to further consolidation ahead. This could also lead to consolidation among plantation stocks.


Chart 1: CPO's daily chart as at June 7, 2011 (source: ifs.marketcenter.com)

For your information, Plantation sector had rallied from a low of 2973 in late 2008 to a high of 8350 in early 2011. Plantation index is now being supported by the 40-week SMA line (the equivalent to 200-day SMA line). We can see that a break below the 40-week SMA line in early 2008 presaged the end of the bull rally for Plantation sector (see Chart 3). This was also confirmed by the bearish breakdown in CPO prices in July 2008 (see Chart 4).


Chart 3: Plantation's monthly chart as at June 1, 2011 (source: Tradesignum)



Chart 4: CPO's weeky chart from April 2008 to September 2009 (source: ifs.marketcenter.com)

With the 2008 breakdown information in hand, we should track the Plantation index & CPO prices closely. If Plantation index were to break below the 40-week SMA line at 7650 and/or CPO prices were to go below RM3250, we could be seeing the end of the bull rally for plantation sector. For now, I believe we should consider taking some profit from oure plantation stocks that have risen respectably over the past few weeks.