The Hindu Business Line : Palm oil may correct lower

MALAYSIAN crude palm oil futures on MDEX closed slightly higher on Friday in a directionless trade. Market players waited for next week's November 1-25 exports data for further direction.

Cargo surveyors ITS and SGS are scheduled to release their exports estimates for November 1-25 on Monday. In his latest crop estimates issued on Friday, private forecaster Mr Ivan Wong said, end-December stocks would remain higher than one million tonnes despite steady exports in recent months. He put end-December stocks at 1.12 million tonnes and January at 1.06 million tonnes and exports in October were estimated at 960,000-965,000 tonnes, compared with the official 1.03 million tonnes in November.

Cargo surveyor SGS said, Malaysian palm oil exports for November 1-20 stood at 604,514 tonnes, down from 691,394 tonnes for October 1-20. India was the biggest buyer of Malaysian palm oil for November 1-20, taking 137,359 tonnes, followed by China, which bought 80,285 tonnes, and Egypt 42,000 tonnes.

The active contract is on the verge of breaking lower. A triangle pattern is noticed on the charts and potential to break the support on the downside is higher. Excellent support comes in at 1545 Malaysian ringgit (MYR) a tonne and a break of that will take it to further lower levels. The horizontal trend line support also lies at 1545 MYR/tonne levels and, therefore, prices should hold well here before falling lower. It could get well supported at 1501 MYR/tonne levels, which is also a 38.2 per cent fibonacci retracement level from 1327 to 1607 ringgits.

As mentioned earlier a break of 1580 MYR/tonne has altered our wave count, where we have been looking at the move as a corrective move in the bigger picture. An impulse fifth wave is in progress.

RSI, after the divergence, has corrected downwards and is in the neutral zone now. The averages in MACD are still above the zero line in the indicator. A reversal can be confirmed after the averages cross the zero line in the indicator. Current prices are below the 9 day EMA indicating the short term trend is getting bearish and the 25 day EMA is at 1532 MYR/tonne.

Look for prices to correct lower from here. Resistance at 1575, 1590 & 1605 ringgits. Supports at 1545, 1532 & 1501 ringgits.

Soya oil is running out of steam and a divergence in indicators for soya oil looks like a top has been established at 23.36c. Prices are targeting 20.15c in the near term.

(The author is a broker at Scotiabank and the views expressed by him are his own and not necessarily that of his employer. This analysis is based on historical price movements and there is risk of loss on trading.)

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