The Hindu Business Line : Palm oil may move up on support

MALAYSIAN crude palm oil futures on MDEX ended higher on Tuesday due to short covering ahead of the Lunar New year holidays. Trading was seen with low volumes, thanks to the margin requirements imposed by the Malaysian derivative exchange.

The MDEX had asked an additional margin, or cash deposit, of 750 ringgits for each lot from Tuesday, 23 per cent more than the current 3,250 ringgits a lot it charges to trade palm oil futures. Increase in margins puts a dampener and adds to positions getting liquidated.

Both cargo surveyors SGS and ITS put January 1-20 exports at 605,618 tonnes and 604,194 tonnes respectively, well below traders' expectations of 620,000-630,000 tonnes. Malaysia's palm oil output in January is expected to fall 20 per cent to 912,000 tonnes month-on-month, according to data released on Tuesday by private forecaster Mr Ivan Wong.

The figures, compiled by independent market analyst, Mr Wong, put end-January stocks at 1.14 million tonnes, against December's 1.16 million. Exports in January were estimated at 865,000-870,000 tonnes, little changed from December.

The active April contract is still stuck in a broad range struggling to find near-term direction. Psychological support at 1700 Malaysian ringgit (MYR) a tonne will be seen followed by the crucial support levels at 1630-1645 MYR/tonne. This still remains a crucial level and a close below this will see a bigger correction unfold. However, our preferred view still remains a break of the 1825 MYR/tonne levels for another rally higher as long as the above-mentioned level holds. This also happens to be the Fibonnaci 38.2 per cet retracement support point of the move from 1282 MYR/tonne to 1865 MYR/tonne. Resistance will be seen at 1801 MYR/tonne levels followed by 1825 MYR/tonne. The wave counts show that the third wave we have been looking at might have ended at 1865 MYR/tonne and a correction from there to 1649 MYR/tonne being the fourth wave and a possible fifth wave could have been over at 1865 MYR/tonne.

An alternate count, suggest that the current consolidation could be a fourth wave move from 1865 MYR/tonne and a possible fifth wave yet to begin, which will head past 1900 MYR/tonne. We will have to wait and watch the crucial support at 1630-45 levels before taking a clear view. RSI is still in the neutral zone, indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line in the indicator indicating a bearish signal and continues to remain below the zero line which is a worrying factor.

Current prices are higher than the short term 9-day EMA at 1735 MYR/tonne and the 25-day EMA is now at 1745 MYR/tonne. Look for prices to move higher as long as the crucial support level holds. Resistances, at 1735,1750 and 1801 ringgits. Supports at 1700, 1670 and 1645 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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