FCPO (Crude Palm Oil Futures) trading, open interest is decreasing, volume is increasing, and price is going up, the likely outcome depends on the underlying market dynamics. Here’s a detailed breakdown:
Key Observations:
- Increasing Volume: Indicates strong trading activity, suggesting active participation in the market.
- Decreasing Open Interest: Means traders are closing positions rather than opening new ones.
- Rising Price: Suggests strong buying momentum.
Possible Interpretations:
1. Short Covering Rally (Most Likely)
- If open interest is falling while price is rising, it usually indicates that short traders are exiting their positions.
- Short sellers are buying back their positions, which pushes the price up.
- This type of rally may not be sustainable unless new buyers step in.
- Once the short covering is complete, momentum could slow down or reverse.
2. Distribution Phase (Potential Reversal)
- If big players are closing long positions while new buyers are not entering the market, the price increase could be temporary.
- This suggests smart money is exiting, and retail traders might be left buying at the top.
- Once the buying pressure fades, the market might see a correction or reversal.
3. Temporary Upside Before a Pullback
- If the rally is driven by short-term traders closing positions, the market may experience a pullback once volume declines.
- To confirm a sustained uptrend, we need to see rising price with rising open interest, meaning new money is entering.
What to Watch Next?
- If open interest starts increasing while price continues up → Bullish trend continuation.
- If volume drops suddenly after short covering ends → Price may consolidate or reverse.
- If open interest remains low and price stalls → Potential for a pullback.
Conclusion
- Short-term bullish due to short covering. Resistance at 4700. Support at 4500.
- Long-term sustainability depends on whether new buying interest emerges.
- Watch for confirmation (rising open interest) to see if the rally can continue.
