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

MALAYSIAN crude palm oil futures ended unchanged on Friday as market participants awaited data from cargo surveyors for more leads on the demand side. CPO futures are expected to move in a tight range because of no fresh triggers on the local fundamentals.

Indonesia's decision to keep palm oil base prices and export taxes unchanged took some of the bullishness seen last week. On the fundamentals side, concerns about rising stocks in Malaysia continued to contain up side attempts by the market presently. However, robust festival demand and the bio-diesel factor will continue to underpin edible oil prices.

The third month active front month contract tested the support levels as we expected. Prices are seen forming a flag pattern, which occurs after a sharp rise in prices. Break above 1,465 MYR/tonne will take prices higher again. Important supports to watch for are the trend line support at 1,441-45 Malaysian ringgit (MYR a tonne followed by another important support at 1,431 MYR/tonne.

As illustrated earlier, an inverse head and shoulder pattern is in the making and the neckline has also been broken at 1,448 MYR/tonne further enhancing our bullish view. As long as 1,416 MYR/tonne holds the downside, expect CPO futures to rise higher and test the Fibo retracement target at 1,543-45 MYR/tonne levels in the coming months. 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 ending at 1,329 MYR/tonne. The third wave seems to have begun looking to target the 1,600 MYR/tonne levels ultimately.

RSI is in the neural zone now indicating that it is neither overbought nor oversold. The averages in MACD are above the zero line in the indicator suggesting bullishness. Prices are below the short-term 8-day period EMA at 1,457 MYR/tonne and the 34-day period EMA is at 1,431 MYR/tonne. Therefore, look for palm oil futures to test the support levels and rise higher again.

Supports at MYR 1,441, 1,430 and 1.423. Resistances at MYR 1,465, 1,478 and 1,504.

(The author is associated with the Multi Commodity Exchange of India Ltd (MCX). 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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