The Hindu Business Line : Palm oil futures may consolidate

MALAYSIAN crude palm oil futures on MDEX ended mostly higher on Friday reversing early losses possibly due to short covering and profit taking. News of China trying to re-negotiate prices of vegetable oil shipments already contracted after refusing millions of tonnes of soyabean made market player nervous.

To curb trade defaults if the market turned anymore volatile, MDEX announced that the cash deposit for trading in palm oil contracts would go up 1,000 ringgits a lot from Monday. This could probably be an important reason for a stronger close on Friday.

Similar volatility was seen in Chicago soya oil, which often sets the trend for palm oil prices. Mr Ivan Wong, the markets leading private forecaster released his estimates, which again turned out to be bearish. Output in May was estimated at 1.1 million tonnes, up 8.9 per cent from April's official figure of 1.01 million tonnes.

End-May stocks could stand 1.13 million tonnes, compared with the official figure of 1.0 million tonnes at end-April. Exports in May were estimated at 910,000 tonnes versus the official figure of 946,044 tonnes for April, he said.

The market's main cargo tracker, Societe Generale de Surveillance (SGS), on Monday estimated Malaysia's palm oil exports for May at 953,781 tonnes, down nine per cent from April.

The third month active August contract pulled back on expected lines. But the pullback could not sustain and came back again close to the recent lows threatening to head further lower. The fall we have been anticipating has materialised and so rapid that our long term expectations has already been met. Long term rising trend line support at 1480 Malaysian ringgit (MYR) a tonne on the weeklies can provide good support.

A daily close below this level will be very bearish for CPO with possible targets near 1350 MYR/tonne followed by another target at 1230 MYR/tonne. We have been adopting a bearish outlook as the weekly charts turned bearish at 1930 MYR/tonne levels.

The 200-week moving average at 1460 MYR/tonne is also a crucial level to watch. 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. The coming week will provide more clues to take a more authentic call on Elliot wave counts from here.

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 1590 MYR/tonne and the 34-day EMA is now at 1705 MYR/tonne. Look for prices to consolidate and test the support levels. Supports, at 1520, 1480 and 1460 ringgits. Resistances, at 1590, 1602 and 1650 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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