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12 June 2016

Dear Fellow Investor,

Divergence is one of the strongest investing signals and offers opportunity for large profits with less risk. There presently is a divergence between cash soybeans and the Malaysian Plantation Index. Soybean and soy oil  prices correlate with palm oil as  soy oil is a  product of soybeans and palm oil competes with soy oil.

Soybeans have reached a 5 year high while palm oil continues to congest.

Most of the time soy oil and palm oil move together.

The DBA which is an ETF traded on the NYSE  has a basket of all the major cash grains including wheat, corn, soybeans,  soy meal and soy oil.  It has risen to new highs while the Malaysian plantation index has been trending lower. 

Weekly DBA chart making new highs

Weekly KLSE plantation index consisting of the major Malaysian plantation companies. It  evidences consolidation. Consolidation occurs when  uncertainty, pessimism, gloom and fear   dominate the mood of the market .

What this means is that Crude Palm Oil prices are lagging behind all major world grain prices.  This is inconsistent and is a classic divergence. It shows quality Malaysian plantation companies are undervalued and offer opportunity for the medium term investor.

Most analysts are bearish on plantation companies so this is not a crowded trade. Look for evidence of smart money buying, line breaks on above average volume on the shares of the major players for entry. I VSA chart can get you in ahead of the crowd

The present gloom is based the drum beat of negative news on the possible Brixit, interest rate uncertainty, 1MBD, foreign fund selling but using common sense what do these issues have to do with crude palm oil- a basic necessity ?  

China/ India/ Europe etc continue to buy our CPO as they all face food deficits due to weather disasters, El Nino and now La Nina. Major buyers continue to feed the bad news into the market while they buy. As world grain prices climb, my forecast is for higher CPO prices and plantation shares. Divergence does not last forever.

Invest well and grow your wealth, Bill

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