The Hindu Business Line : Palm oil may consolidate, rise

MALAYSIAN crude palm oil futures on BMD ended lower on Friday as market participants waited for next week's export estimates during May 1-15 for further clues.

CPO futures reacted sharply to news of possible Chinese Yuan revaluation.

Though the revaluation could dampen Malaysian export sentiment in the near-term, it could benefit importers like India and, therefore, neutralise the negative effect in the long run. Demand-supply situation does not seem to help CPO futures either.

Production reached 1.25 million tonnes in April, up 2.55 per cent from an earlier record in March, the official Malaysian Palm Oil Board said this week. Higher output during a mostly lean production season is seen adding further pressure on prices.

The third month active July contract is see-sawing near the psychological 1,400 Malaysian ringgit (MYR) a tonne levels. A break below 1,405-10 MYR/tonne saw futures head lower below 1,400 MYR/tonne from where it bounced impressively. Weekly charts are still looking positive.

As long as 1,370 MYR/tonne holds the downside, our favoured view will be to look for prices to head higher towards 1,535 MYR/tonne levels in the medium-term. However, an unexpected weekly close below 1,365 MYR/tonne can have bearish implications. We have been tracking a bullish reversal right from 1,250 MYR/tonne levels as the weekly charts have been showing signs of strong positive divergences.

The move to 2,003 MYR/tonne is the end of the fifth wave impulse and a move lower from there is a corrective A-B-C pattern in the making. Wave "A" ended at 1368 MYR/tonne followed by a flat Wave "B" which then hit 1,566 MYR/tonne. Wave "C" then possibly ended at 1,252 MYR/tonne.

We are possibly in a new impulse with the first wave of the impulse ending at 1,504 MYR/tonne and the second wave in progress in a triangle pattern. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The weekly averages in MACD have gone above the zero line in the indicator suggesting bullishness.

Current prices are lower than the short-term 8-day EMA at 1,416 MYR/tonne and the 34-day EMA is now at 1,421 MYR/tonne. Look for prices to consolidate and move higher subsequently.

Supports are at 1,405, 1,385 and 1,370 MYR. Resistances at 1,421, 1,435 and 1455 MYR.

(The author is associated with the Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not necessarily that of his employer. This analysis is based on historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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