Olam International Technical Analysis

In this article, we present the technical analysis of Olam International which is listed on the Singapore Stock Exchange. Olam is in the commodity business. Olam share price has been in a down trend similar to other commodity stocks such as Wilmar and Noble Group.

We published an article on Olam in May 2012 which was titled That is One Huge Head and Shoulders Pattern to highlight a major down trend in Olam. I present the chart that was published in the article here. When the article was being published, the neck line of the head and shoulders had just been triggered and I mentioned in that article that the target based on the head and shoulders pattern is 0.91. Olam was trading around 1.80 at the time the article was published.

Fast forward to Dec 2012, Olam International has gone as low as 1.52 before recovering to retest the neck line before collapsing back to 1.36. Here’s the updated chart showing the recent moves. There are a few things to point out in this chart. Firstly, there has been two strong burst of selling. One was in May 2012 and the other was from end of Nov 2012 till mid Dec 2012. This type of selling is also called the blow-off selling it normally results in a exhaustion on the part of the sellers and price moves rapidly in the opposite direction. Olam has indeed gained about 15% from the recent bottom at 1.36.

The second point to note is the MACD which is clearly showing a positive divergence compared to the price action. This is also another bullish indication.

Lastly, Olam International is in a clear downtrend and a clear channel can be drawn to capture the price action within this channel. Olam share price was heading for the bottom channel line and I believe the strong burst of selling has exhausted the sellers and the share price started to turn up instead. This is also another bullish indication.

The analysis points to a medium term bullishness in a long term bearish downtrend. Olam International could be heading for the top channel line around 1.70 to 1.80 region before coming down to continue in its downtrend. Remember that the target for the head and shoulders is 0.91 and that could be where Olam might be headed next after touching the upper trend line. It is always wise to trade along the major trend and in this case, it is downwards. Counter trend rallies do present opportunities but it needs to be monitored closely as it can turn swiftly and continue in the major trend.