The Hindu Business Line : Palm oil futures may head up

MALAYSIAN crude palm oil futures on MDEX closed higher on Friday with a sudden rush of buying emerging during the close as the CPO futures witnessed profit taking during the day. A stronger close in overnight Chicago soya oil also underpinned future prices.

This week saw a smart pullback up to 1584 Malaysian ringgit (MYR) a tonne supported by a revival in the values of soya oil prices at CBOT. Societe Generale de Surveillance (SGS), the market's main cargo tracker whose figures are more closely watched by the market, said exports for June 1-25 stood at 816,853 tonnes, up from 769,493 tonnes for May l-25 below market expectations. ITS and SGS are due to give estimates for June exports on Wednesday.

Markets have regained some lost confidence as a minor increase in exports compared to the previous month and similar drop in palm oil stocks helped bolster sentiment. Mr Ivan Wong, the market's main forecaster, put closing stocks of palm oil for June at 1.20-1.21 million tonnes in an estimate released earlier in the week.

The third month active contract finally showed signs of a pullback. Looks, like we have seen a temporary bottom near the 1450 MYR/tonne level, which also happens to be the long term rising trend line point. Only a daily close below this level will risk the possibility of a test of 1350 MYR/tonne. We have been continuing our bearish outlook till last week.

However, recent price structures suggest a good pullback in the offing up to 1667 MYR/tonne, which is also the fibonnaci 38.2 per cent retracement level for the move from 2003-1457 MYR/tonne. This will be followed by the next important 200-day exponential average resistance point at 1689 MYR/tonne.

We have been adopting a bearish outlook as the weekly charts turned bearish at 1930 MYR/tonne levels based on divergences in indicators, moving average cross-over and elliot wave structures. Using elliot wave analysis, we should now be in wave "B" targeting 1670-1700 MYR/tonne levels.

The move to 2003 MYR/tonne is the end of the fifth wave impulse and a move from there is a corrective A-B-C pattern in the making. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. A positive divergence is now seen where prices have made a lower low, which is not confirmed by a lower low in the indicator. The averages in MACD, are still below the zero line in the indicator suggesting bearishness.

Only a crossover above the zero line will indicate a trend reversal. Positive divergence is noticed in MACD too. Current prices are higher than the short-term 8-day EMA at 1533 MYR/tonne and the 34-day EMA is now at 1598 MYR/tonne.

Look for prices to consolidate and head higher. Supports, at, 1525 , 1500 & 1475 ringgits. Resistances, at 1567, 1598 & 1667 ringgits.

(The author is associated with the Multi Commodity Exchange of India (MCX). The views expressed in this column are his own and not of MCX. This analysis is based on the historical price movements and there is risk of loss in trading.)

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