The Hindu Business Line : Palm oil futures may head lower

MALAYSIAN crude palm oil futures on MDEX closed lower on Friday due to continued soya oil weakness on talks that a major US processor would import meal and oil from South America to offset thin stocks.

Soya complex at the Chicago Board of Trade hit three month lows on heavy fund liquidation. Export estimates for the first half of May, is due between Saturday and Monday from the two cargo surveyors. Societe Generale de Surveillance, the main cargo surveyor, has estimated exports for the first 10 days of May at 334,522 tonnes, down slightly from the 347,908 tonnes for April 1-10.

Markets will now focus on export performance for the month of May and any adverse report on exports is sure to add further pressure on the future contracts. Palm oil prices were also pressured by a bearish crop report from the official Malaysian Palm Oil Board released on Wednesday.

MPOB put Malaysia's palm oil closing stocks in April at 1.0 million tonnes, up 4.58 per cent from 957,801 tonnes at end-March. Output rose 7.22 per cent to 1.01 million tonnes in April compared to 940,761 tonnes in March. April exports totalled 946,044 tonnes.

The third month active July contract is moving perfectly as per our expectations. A channel seen in the chart shows falling trend line support near the 1765 Malaysian ringgit (MYR) a tonne levels. Failure to hold support here will see it testing 1750 MYR/tonne followed by the important support at 1720 MYR/tonne which is also the fibonnaci 38.2 per cent retracement level.

The previous week's move to 1905-1910 MYR/tonne was a corrective one in nature and as expected failure to close above that level pushed it lower from there. We have been adopting a bearish outlook as the weekly charts turned bearish at 1930 MYR/tonne levels.

The weekly charts, reveals the possibility of a bullish cycle getting over at 2003 MYR/tonne. The rising trend line support point for this channel is close to 1500 MYR/tonne. A pullback can now be seen up to 1850 MYR/tonne. Using elliot wave analysis, we could be in the last leg of wave "A". This would be followed by an up ward correction in Wave "B".

The move to 2003 MYR/tonne is the end of the fifth wave impulse and a move from there is a corrective wave "A" targeting 1750 MYR/tonne levels. The move to 1900 MYR/tonne could be the fourth wave of Wave "A" and the current move being the last leg of the same.

RSI is now in the oversold zone indicating that a correction is in the offing. The averages in MACD continues to be below the zero line in the indicator suggesting bearishness. Current prices are lower than the short-term 8-day EMA at 1840 MYR/tonne and the 34-day EMA is now at 1868 MYR/tonne.

Look for prices to head lower initially followed by the possibility of an up ward correction. Supports, at 1765, 1750 and 1720 ringgits. Resistances, at 1800, 1825 and 1845 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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