The Hindu Business Line : Palm oil may test resistance, rise

MALAYSIAN crude palm oil futures ended lower on Friday as weakness in overnight CBOT pressured CPO futures further lower testing one-week lows in the process. Talk of imminent rain in key US soya growing areas drove down soya oil futures on the CBOT, after fears of drought had powered a rally for weeks.

The Government-run Malaysian Palm Oil Board is due to release next Wednesday official production, exports and closing stock numbers for July.

The two independent cargo surveyors will issue on the same day export estimates for the first 10 days of August.

Societe Generale de Surveillance (SGS), the main independent surveyor of Malaysian oil palm shipments, had estimated exports in July to have dropped almost 14 per cent from June.

Though the fundamental picture looks bearish currently, the onslaught of festival season in the consuming countries should arrest any possibility of a major decline in the values of CPO futures.

The third month active October contract headed lower towards the support levels. Prices have closed below the crucial support at 1,345 Malaysian ringgit (MYR) a tonne for the week increasing the potential for the downside to 1,321-25 MYR/tonne, being a channel trend line support point as seen in the chart above.

A daily close below 1,320 MYR/tonne will negate any bullish expectations we have had till now and test the psychological 1,300 MYR/tonne or even lower.

Our favoured view till now has been to look for a rise higher despite the recent fall in prices mainly due to a positive pattern in CBOT soya oil.

We have still not given up this view, but the odds are evenly matched now and it is important for the support levels to hold. 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. The correction 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. A strong third wave is to begin anytime soon.

RSI is in the oversold zone indicating a correction to take place. The averages in MACD have gone below the zero line in the indicator suggesting bearishness. Only a crossover of the averages above the zero line again will signal a clear bullish reversal.

Prices are below the short-term 8 period EMA at 1,361 and the 34-day period EMA is at 1,390 MYR/tonne. Therefore, look for prices to test the support levels and then pullback higher. Supports at 1,343, 1,321 and 1,300 ringgits. Resistances at 1,361, 1,385 and 1,397 ringgits.

(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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