The Hindu Business Line : Upward correction likely in palm oil

MALAYSIAN crude palm oil futures on MDEX ended lower on Friday due to continued soya oil weakness and pressured by a bearish crop report from the month of May.

Prices have been depressed throughout this month due to a slump in Chicago soya oil, and dismal supply-demand projections. Mr Ivan Wong, the leading private forecaster, estimated on Friday, that Malaysia's palm oil output in May to be in the range of 1.090-1.095 million tonnes, up from the official figure of 1.01 million tonnes in April.

He put end-May stocks of palm oil at 1.11-1.12 million tonnes, compared with the official figure of 1.0 million tonnes at end-April. Exports of palm oil in May were estimated at 905,000-910,000 tonnes, down from the official figure of 946,044 tonnes for April.

The market's main cargo surveyor Societe Generale de Surveillance on Thursday put exports of Malaysian palm oil for May 1-20 at 592,272 tonnes, down from the 678,716 tonnes it had estimated for April 1-20. Malaysian exporters were also worried over talk that top palm oil buyer India could reduce the base price for soya oil tariffs.

The third month active August contract continues to move on expected lines. The fall we have been anticipating has materialised. We have been adopting a bearish outlook as the weekly charts turned bearish at 1930 Malaysian ringgit (MYR) a 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. Next important support lies at 1627 MYR/tonne. This is the Fibonnaci 50 per cent retracement level for the move from 1235 to 2003 MYR/tonne. This is also a level, which held well in the past and paved the way for the move to 2003 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". 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 1720 MYR/tonne and the 34-day EMA is now at 1811 MYR/tonne. Look for prices to head lower initially followed by the possibility of an upward correction. Supports, at 1650, 1627 and 1590 ringgits. Resistances at 1675, 1710 and 1750 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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