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Sunday, Oct 20, 2002

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Bullish reversal likely in palm oil


MALAYSIAN crude palm oil futures on MDEX rallied on Friday on strong export expectations for October but closed off its highs as top buyer India, refused to commit to fresh import duty cuts.

The Malaysian Prime Minister, Mr Mahathir Mohamad, on a visit to India, said on Friday, New Delhi was non-committal on cutting import duties on palm oil. India's ratio of soya oil imports in total imports of edible oils had risen to 34 per cent between November 2001 and September 2002 from 28 per cent during the same year-ago period.

Direction for palm oil in the coming week would depend on export estimates for the first 20 days of October, due on Monday from cargo surveyors SGS and Intertek. Speculation that exports for this month would ultimately be higher than in September pushed the market up on Friday. Earlier SGS put Malaysian palm oil shipments for October 1-15 at 472,638 tonnes against 426,226 for September 1-15.

Indonesian Rupiah managed to hold on after the Indonesian central bank intervened to defend the Rupiah, as worries over the weekend bombing in Bali drove it to a new six-month low of 9,400.

The active contract surged and made new monthly highs against our expectations. In spite of a spectacular recovery in prices, still believe that there are no strong technical indications to signal an up ward reversal from here.

Good resistance will be noticed at 1448 Malaysian ringgit (MYR) a tonne, a trend line resistance point and break of that on the up side can take it up to 1460 MYR/tonne in the short term, where it can top out and start coming down again. It coincides with the 61.8 per cent fibonacci retracement target from 1543 MYR/tonne to 1327 MYR/tonne.

Using elliot wave analysis we are now in the corrective wave `B', in the bigger picture. The first corrective pattern `A' started at 1543 MYR/tonne and ended at 1348 MYR/tonne, which is towards the trend (bearish) and `B' which is in progress will be against the trend (bullish) and could end at 1460 MYR/tonne.

RSI is in the neutral zone and heading towards the overbought zone. The indicator is also making higher highs and bottoms which is a sign of a up trend in progress. The averages in MACD are very close to breaching the zero line in the indicator. A break of this line will signal a bullish reversal. Current prices are above the 9 and 25 day EMA, which is again a sign of bullishness. Though the current rally has all the makings of a bullish reversal, cautious optimism needs to be adopted as there are no pressing indications of a spectacular recovery from here.

Look for prices to head higher initially and then start correcting lower. Resistance at 1448, 1460 and1488 ringgits. Supports at 1425, 1413 and 1397 ringgits.

(The author is a Chennai-based technical analyst who tracks the international commodity futures markets. This analysis is based on historical price movements and there is risk of loss on trading.)

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