The Hindu Business Line : Palm oil may rise in correction

MALAYSIAN crude palm oil futures on MDEX ended higher on Friday in a remarkable pull back after almost hitting limit down about possible palm oil shipments defaults in China. News of Chinese defaults and washouts increased fears of a sharp decline in exports, which saw CPO futures head to seven-month lows.

Soya oil's continued weakness also pressured the market throughout the week. Rumours that palm oil shipments were cancelled by China due to heavy stocks and a sharp fall in domestic prices led to a massive sell off. Leading edible oils analyst, Mr Dorab Mistry, added to the bearish sentiment by saying that a rally in palm oil prices may not happen until July.

Mr Mistry said favourable all-round weather for oilseeds, retreat of speculators from the Chicago Board of Trade and credit squeezes in China could push prices lower in four to six weeks.

Societe Generale de Surveillance, the market's main cargo tracker estimated Malaysian palm oil exports for May 1-25 at 769,493 tonnes, down 9.5 per cent from estimates it had given for April 1-25.

The third month active August contract continues to move on expected lines. The fall we have been anticipating has materialised and so rapid that our long term expectations has already been met. There has been no significant pullback till now except for the Friday's move. This move should continue to 1625 Malaysian ringgit (MYR) a tonne levels.

Good resistance will be seen at 1602 MYR/tonne, which is a falling trend line resistance point. Next important support lies at 1520 MYR/tonne. We have been adopting a bearish outlook as the weekly charts turned bearish at 1930 MYR/tonne levels. An important thing to note would be the 200-week moving average and a long term trend line in weekly charts seen above, has held well indicating a strong correction up wards from here.

A daily close below 1460 MYR/tonne, however, will be very bearish for CPO futures. We might need to review our elliot wave counts after the sharp fall last week. The move to 2003 MYR/tonne is the end of the fifth wave impulse and a move from there is a corrective A-B-C pattern in the making. RSI, is heavily oversold and a good correction is in the offing.

However, there is no divergence seen which leads us to believe that this bearish trend is not completely over. 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 1605 MYR/tonne and the 34-day EMA is now at 1745 MYR/tonne.

Look for prices to correct up wards. Supports, at 1520, 1497 and 1460 ringgits. Resistances at 1602, 1625 and 1663 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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