The Hindu Business Line : Palm oil may move up before dipping

MALAYSIAN crude palm oil futures on MDEX closed higher helped by gains in Chicago soya oil in Asian screen trade. Export figures will be the key now and the last 10 days of exports should provide some clues.

Private forecaster Mr Ivan Wong on Wednesday put export estimates of 955,000-965,000 tonnes for April against March's official number of 929,175 tonnes. Societe Generale de Surveillance (SGS), the market's main cargo surveyor, on Tuesday estimated exports during April 1-20 at 678,616 tonnes. They had estimated exports for March 1-25 at 837,488 tonnes.

A strong rebound in Chicago soya oil prices will provide the impetus for palm oil prices as they have been moving in line with each other with no drastic fundamental change noticed yet. Tight US soya supplies, firm US and South American cash trade, and strong soya oil prices have been the salient features of the market, which drove prices to multi year highs.

The US Department of Agriculture has forecast that the US soyabean supplies in August will hit a 27-year low of 115 million bushels. The third month active July contract has continued to move lower. A near-term correction could now be seen with initial resistance at 1850-60 Malaysian ringgit (MYR) a tonne level followed by important resistance at 1884 MYR/tonne.

As mentioned last week the weekly charts, reveal the possibility of a bullish cycle getting over at 2003 MYR/tonne. As per the channel in the chart, the rising trend line resistance point is at 2035 MYR/tonne. Prices came close to it but did not test this level as we have been expecting.

The rising trend line support point for this channel is close to 1500 MYR/tonne. Another important long-term support point will be at 1710 MYR/tonne, which happens to be the fibonnaci 38.2 per cent retracement level for the move from 1233 to 2003 MYR/tonne.

Therefore, the overall correction has the potential to test the above mentioned long term support points. Only a break above 1930 MYR/tonne will negate our bearish outlook for the long term. We would now be tracing a wave "A" followed by an up ward correction in Wave "B". The move to 2003 MYR/tonne is end of the fifth wave impulse and a move from there is a corrective wave "A" targeting 1750 MYR/tonne levels.

RSI is close to the oversold zone and a correction higher can be expected. It is also showing a minor positive divergence, where prices are making a lower low which is not confirmed by a lower low in the indicator. The averages in MACD are below the zero line in the indicator indicating a bearish reversal. Current prices are higher than the short-term 8-day EMA at 1845 MYR/tonne and the 34-day EMA is now at 1883 MYR/tonne. Look for prices to correct higher and then head lower again. Supports at 1825, 1810 and 1785 ringgits. Resistances, at 1855, 1870 and 1885 ringgits.

(The author is associated with the Multi Commodity Exchange of India (MCX). The views expressed in this column are his own and not that of his employer. This analysis is based on the historical price movements and there is risk of loss in trading.)

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