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Gnanasekar T.

Crude palm oil futures on the Malaysia Derivatives Exchange, or MDEX, closed slightly lower on Friday in range bound trading after the export estimates failed to provide any clues on further direction of prices.

News that India was planning to toughen import rules for soyabean oil to protect its own producers, will put palm oil as an indirect beneficiary.

The measure is expected to boost palm oil demand. However, the whole of the week was dominated by heavy punting on speculation of strong exports for January.

Cargo surveyor SGS on Friday estimated Malaysian palm oil exports for Jan 1-25 totalled 759,853 tonnes, down 5.5 per cent from 804,532 tonnes during the same period in December. The number was lower than the estimate by Intertek, which estimated Jan 1-25 exports at 787,247 tonnes up 4 per cent from its estimate for the Dec 1-25 period.

Uncertainty in the direction of prices to continue due to the confusing nature of exports data from the two surveyors and a provincial holiday next week would keep prices in the same range early next week.

Nevertheless, the market will continue to speculate on the announcement by China on its release of palm oil import quota for 2002.

The active contract April is once again caught in a channel. This week again saw prices testing the 1240-1260 myr/tonne range only to find strong resistance there.

Therefore, it is locked in a range between 1200-1260 myr/tonne. A break of 1260 myr/tonne will only signal a beginning of a new up trend in Palm oil. We also saw a test of the 1187 myr/tonne. A break of 1187 myr/tonne and any break at this level has the potential to test 1140 myr/tonne in the short term.

There is also a head and shoulder pattern in the making, which could have a negative impact in the short term. For this pattern to succeed, a neckline break down wards at 1190 myr/tonne is crucial. So, it is very important to monitor the 1190 myr/tonne level next week.

RSI continues to be in the neutral zone indicating that it is neither overbought nor oversold. There is also no divergence, which is an important technical factor to identify reversals. MACD, continues to be above the zero line in the indicator and as long as it stays above the zero line there is no cause to worry. Prices are slightly above the short-term moving average of 9 day EMA and the 50 day EMA is now at 1161 ringgits.

Therefore, crucial level to watch would be the 1190 myr/tonne level and a break of it down wards could lead to a fall in prices in the near term. Look for prices to test the important support levels next week. Resistances at MYR 1236, 1255 & 1267 and supports at MYR 1190,1187 & 1147.

The RSI(Relative Strength Index) usually tops above 70 and bottoms below 30. Once RSI reaches 70 and above the commodity tends to become overbought (and a correction is due) and when it reaches 30 and below it tends to become oversold (and a rally up side is due). Divergences occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the RSI. Prices usually correct and move in the direction of the RSI. The MACD is the difference between a 26-day and 12-day exponential moving average. A 9-day exponential moving average, called the ``signal'' (or ``trigger``) line is plotted on top of the MACD to show buy/sell opportunities. A crossover of two moving averages can be used to signal buy/sell opportunities as the short term average crosses over the longer term.

(The author is a Chennai-based technical analyst who tracks the international commodities futures markets. This analysis is based on historical price movement of the commodity concerned. There is risk of loss in trading.)

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