The Hindu Business Line : Palm oil may correct lower

MALAYSIAN crude palm oil futures on MDEX closed higher on Friday mostly on short covering ahead of a long holiday next week. The market will be shut from Monday to Wednesday for the Muslim Id al-Fitr holiday, reopening on Thursday.

CBOT futures were also looking higher on hopes that the Senate would pass the bio diesel tax incentive as part of the energy bill.

Bio-diesel, which can be used in diesel engines, is made from soyabean oil or other vegetable oils and fats. Malaysia's palm oil output in November was estimated at 1.06 million tonnes, down 11 per cent from the official figure of 1.19 million tonnes in October, according to data from crop forecaster PALMIS.

He also put end-November stocks at 800,000-810,000 tonnes, compared with the official figure of 875,083 tonnes at end-October. Exports in November were estimated at 1.02 million tonnes, down from the official figure of 1.20 million tonnes for October.

Cargo surveyor SGS said on Thursday Malaysian palm oil exports for November 1-20 stood at 655,937 tonnes, down from 820,681 tonnes for October 1-20.

The active February contract is consolidating in a range waiting for a direction from here. Support near the 1635 Malaysian ringgit (MYR) a tonne level still seems to be containing the downside. The current pattern looks like a flat consolidation with resistance at 1840 and support at 1630 levels. Alternatively, we are also looking at a double top pattern with a base at 1635 MYR/tonne and an unexpected close below that level should see futures dropping lower in the short term. Either ways, 1635 MYR/tonne will be a crucial level to watch in the coming week.

As we have been maintaining as long as 1635-1645 MYR/tonne holds, in the bigger picture we should see CPO futures trying to test recent highs and possibly go beyond that. This level also happened to be the Fibonnaci 38.2 per cent retracement support point of the move from 1282 MYRr/tonne to 1837 MYR/tonne.

A closer look at the wave counts reveal that the third wave we have been looking at might have ended at 1846 MYR/tonne and we could be in the beginning of fourth wave correction in progress. RSI, is now in the neutral zone indicating that it is neither overbought nor oversold. 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 close to the short term 9 day EMA at 1738 MYR/tonne and the 25day EMA is now at 1707 MYR/tonne.

Look for prices to correct lower. Resistances at 1775, 1788 and 1810 ringgits. Supports at 1728 ,1700 and 1630 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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