The Hindu Business Line : Palm oil futures may head lower

MALAYSIAN crude palm oil futures on MDEX closed slightly higher on Friday ahead of the release of March 1-15 palm oil export estimates next week. Cargo surveyors ITS and SGS are scheduled to issue the data on Monday.

End-February stocks were estimated by the Malaysian Palm Oil Board (MPOB) at 1.09 million tonnes, down 0.9 per cent from January, but still around the key psychological level of one million tonnes.

Private forecaster Mr Ivan Wong estimated end-March stocks at between 1.03-1.04 million tonnes. However, there was speculative buying earlier this week on reports of huge purchases by India because it had refrained from buying much oil in previous months while waiting for a possible cut in edible oil imports duties.

But in its budget announced on February 28 the Government left duties unchanged. Moreover, soya oil from South America would enter the edible oils market in late March, giving consumers such as India and China more choice beyond the usually cheaper palm oil.

The active contract headed lower as per expectations. Prices are consolidating at the moment trying to find some near term direction. Crucial resistance will now be at 1535 Malaysian ringgit (MYR) a tonne with crucial support at 1450 MYR/tonne in the short term.

As we have been maintaining for a while, a high has been made at 1695 MYR/tonne and a correction followed from there. We are in a corrective phase and every rise in this corrective move is ending with a lower high and a lower bottom a clear sign of a downtrend in progress.

An impulse fifth wave has ended at 1690 MYR/tonne and a new corrective phase has begun. Wave "A" could have ended at 1576 MYR/tonne and wave "B" at 1624 MYR/tonne. A possible "C" wave has started which is impulsive in nature and therefore can expect lower prices to come. RSI has entered the oversold zone and a minor correction up wards can be expected. The averages in MACD continue to be below the zero line in the indicator showing weakness. A clear change in trend will be noticed after the averages in MACD go above the zero line in the indicator.

Current prices are below the short term 9 day EMA and the 25day EMA is at 1558 MYR/tonne. Look for a minor correction and expect price to continue to head lower.

Resistance at 1535, 1560 & 1580 ringgits. Supports at 1495, 1450 & 1415 ringgits.

The author is a trader with ScotiaBank and the views expressed him are his own and not necessarily that of his employe. This analysis is based on historical price movements and there is risk of loss on trading. )

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