The Hindu Business Line : Uptrend may continue in palm oil

MALAYSIAN crude palm oil futures on MDEX zoomed higher on Friday after a rally sharp rally in Chicago soya futures coupled with a rally in China's Dalian Commodity exchange.

Soyabean futures reached six-year highs following news of hefty US soyabean sales to China amid already tight US supplies.

There was also heavy short covering ahead of a long weekend in anticipation of further gains in soya futures. Market was closed on Friday for Diwali.

Private crop forecaster Mr Ivan Wong on Tuesday estimated Malaysia's palm oil output in October at 1.23-1.24 million tonnes, down five per cent from the official figure of 1.30 million tonnes in September.

He put end-October palm oil stocks at 890,000 tonnes, compared with 975,266 tonnes at end-September. Exports in October were estimated at 1.18-1.19 million tonnes, little changed from the official figure of 1.20 million tonnes for September.

Cargo surveyor SGS said on Monday Malaysian palm oil exports for October 1-20 stood at 820,681 tonnes, up from 800,109 tonnes for September 1-20.

The active January contract continues to move higher as per expectation. The consolidation and the flag pattern a continuation pattern we identified last week helped prices move higher again.

As expected a close above the 1700 Malaysian ringgit (MYR) a tonne level provided the impetus, which lead to a bullish momentum.

This will be a crucial level to watch now, as it becomes an important support level for the current rally. A break of this level should see a correction set in lower.

A gap has also been created at 1700 MYR/tonne, which can be filled on its way back.

As mentioned earlier, we are in the middle of a strong impulse wave rally in progress with the third wave currently in progress. The third wave, has the maximum momentum and believe that the momentum should continue further for a while.

We are now in the fifth wave of the third wave impulse in progress. RSI, is still in the overbought territory and in need of a correction.

However, in such strong markets RSI has the tendency to hover in the overbought zone for a long time before turning lower.

The averages in MACD, are still above the zero line in the indicator indicating the current trend to be intact. Only a break below the zero line in the indicator will signal a bearish trend. Current prices are above the short term 9-day EMA at 1665 MYR/tonne and the 25-day EMA is now at 1558 MYR/tonne.

Look for prices to continue to head higher with a possibility of minor correction. Resistances at 1798, 1820 and 1875 ringgits. Support at 1758,1730 and 1700 ringgits.

(The author is a trader with Scotiabank and the views expressed by him are his own and not necessarily that of his employer. This analysis is based on historical price movements and there is risk of loss on trading).

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