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Gnanasekar T.

Crude palm oil futures on the Malaysia Derivatives Exchange, or MDEX, closed on a steady note on Friday mainly on news of a possible currency devaluation in the region which might force Malaysia to reconsider the current currency peg with the US dollar.

Palmis on Friday revised upward the December CPO output to 940,000 tonnes from its previous estimate of 910,000 tonnes. As a result of the higher output, end December stocks were also revised up wards to 1.140 million tonnes compared to 1.294 million tonnes at the end of November.

The week started off well with prices rallying on the back of supportive December crop estimates, supply problems in Indonesia and expectations of China going to issue its import quota of around 1 million tonnes sometime this month.

SGS meanwhile estimated Jan 1-10 exports at 252,373 tonnes down 27 per cent from 343,873 tonnes in the first 10 days of December. It was lower than the Intertek estimate at 287,626 tonnes.

Chicago soya oil futures was also responsible for this week's rally. CBOT began the week strongly with weather concerns and a possible crop deficit. However, the week closed on major profit taking and it shed most of the gains.

The third month active March contract as per our expectations broke out of the channel upwards.

However, again as mentioned last week, prices could not close above 1260 myr/tonne, which does not give me enough confidence to confirm the bullish trend. A beginning of a new up trend in palm oil can only be confirmed after a close above 1260 myr/tonne.

Trend lines are very supportive at 1200 myr/tonne and this level could provide excellent support in the weeks to come. A possible down ward correction initially to 1,187 myr/tonne and then 1140 myr/tonne cannot be ruled out at this stage. With 1140 myr/tonne being the 38.2 per cent retracement of the move from 925-1267 ringgits.

RSI after entering the overbought zone corrected downwards. However, there is no divergence. Divergence occurs when prices are making a new high, which is not confirmed by a new high in the indicator. MACD, is still above the zero line in the indicator and as long as it stays above the zero line there is no cause to worry. However, a divergence can be noted in MACD, which puts a lot of doubt about the strength of the current up move. Prices are above the short term moving average of 9 day EMA and the 50 day EMA is now at 1131 ringgits.

Therefore, crucial level to watch would be the 1200 myr/tonne level and a break of 1,187 myr/tonne down wards could lead to a minor fall in prices before the up trend resumes. Look for prices to correct downwards and if supported at 1200 myr/tonne will continue heading higher. Resistances at MYR 1236, 1255 & 1267 and supports at MYR 1200,1187 & 1140.

CBOT still has a strong resistance at 17c. A correction downwards can be expected in soya oil futures in the coming week. MACD has not yet entered the positive zone above the zero line in the indicator and RSI is now in the neutral zone indicating it is neither overbought nor oversold zone.

The RSI(Relative Strength Index) usually tops above 70 and bottoms below 30. Once RSI reaches 70 and above the commodity tends to become Overbought (and a correction is due) and when it reaches 30 and below it tends to become Oversold( and a rally up side is due).

Divergences occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the RSI. Prices usually correct and move in the direction of the RSI. The MACD is the difference between a 26-day and 12-day exponential moving average.

A 9-day exponential moving average, called the "signal''(or``trigger") line is plotted on top of the MACD to show buy/sell opportunities. A crossover of two moving averages can be used to signal buy/sell opportunities as the short term average crosses over the longer term.

(The author is a Chennai-based technical analyst who tracks the international commodities futures markets. This analysis is based on historical price movement of the commodity concerned. There is risk of loss in trading.)

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