The Hindu Business Line : Palm oil futures may test support

Malaysian crude palm oil futures ended higher on Friday on the back of strong exports. Exports of Malaysian oil palm products for August 1-10 stood at 469,977 tonnes, up 32 per cent from between July 1 and 10, as estimated by cargo surveyor Societe Generale de Surveillance.

Falling international crude oil prices could pressure palm oil prices in the coming week resulting in profit taking as prices have risen almost 13 per cent since the beginning of the year. Fall in prices is, however, expected to be limited, as traditional buyers who have been left out of this rally will step in and support prices.

CPO active month futures moved perfectly in line with our expectations. Initial support will be seen at 1638-40 Malaysian ringgit (MYR) a /tonne levels being a rising trend channel support point. Failure to hold support there could see prices extending lower to 1607 MYR/tonne or even lower to 1585 MYR/tonne levels in the coming week.

Underlying trend remains strong and prices are expected to bounce higher after this correction.

We will continue to stick with the same favored wave counts. The move to 2003 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.

We are now in a new impulse with the first wave of the impulse ending at 1,504 MYR/tonne and the second wave ending at 1329 MYR/tonne. With the way prices have shot, it makes us believe that the third wave is in progress. RSI is showing a negative divergence, a sign of near-term bearishness.

The averages in MACD are above the zero line in the indicator suggesting bullishness. Negative divergence is seen in MACD as well. Prices are above the short-term 8-day period EMA at 1642 MYR/tonne indicating short-term bearishness and the 34-day period EMA is at 1581 MYR/tonne. Therefore, look for palm oil futures to test the support levels and rise higher again.

Supports are at 1638, 1607 and 1585 ringgits. Resistances are at 1674, 1695 and 1752 ringgits.

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

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