The Hindu Business Line : Palm oil may move higher

MALAYSIAN crude palm oil futures on MDEX ended higher on Friday on the back of a strong rally in Chicago soya oil. In spite of a not so favourable data on production and closing stocks by private forecaster Ivan Wong futures moved higher, thanks to the overnight rally.

Soya oil hit a high of 31.20 cents per lb, the highest level since 1988 on Chinese demand coupled with supply worries from US. Wong put Malaysia's palm oil output in January at 885,000 tonnes, down 22 per cent from the official figure of 1.13 million tonnes in December. Stocks at end-January were estimated at 1.135 million tonnes, compared with the official figure of 1.165 million tonnes at end-December.

Leading palm oil exports tracker Societe Generale de Surveillance said palm oil shipments for last month were estimated at 892,507 tonnes, against 888,408 tonnes for December. Market expectation was in the range of 900,000-tonne.

The active April contract is moving on expected lines. As we have been maintaining in our earlier updates, our preferred view still remains a break of the 1825 Malaysian ringgit (MYR) a tonne levels for another rally higher as long as the above mentioned support levels holds. There are strong resistance points at 1845 MYR followed by 1865 MYR/tonne, which are fractal points. Long-term support will be at 1630-45 MYR/tonne and only a close below this level can be seen as a reversal.

This also happens to be the Fibonnaci 38.2 per cent retracement support point of the move from 1282 MYR/tonne to 1865 MYR/tonne. With the current move our alternate count we have been talking about has gained significance, as the current consolidation being a fourth wave move from 1865 MYR/tonne and a possible fifth wave has just begun, which will head past 1900 MYR/tonne.

RSI is still in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD have once again gone above the zero line in the indicators showing signs of bullishness to set in again. Current prices are higher than the short term 9-day EMA at 1782 MYR/tonne and the 25-day EMA is now at 1765 MYR/tonne.

Look for prices to continue moving higher. Resistances at 1845,1865 and 1895 MYR. Supports at 1810, 1782 and 1760 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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