The Hindu Business Line : Palm oil may correct higher

MALAYSIAN crude palm oil futures on MDEX closed higher on Friday after remaining depressed throughout the session on weak overnight CBOT soya oil values. The September contract sank to nine-month lows on Tuesday, below the key 1,400-ringgit a tonne support, after a sell-off in overnight Chicago soya oil and bearish fundamentals prevailing in the market.

Recovery was seen in crude palm oil futures after prices hit a low of 1368 Malaysian ringgit (MYR) a tonne on Tuesday. Societe Generale de Surveillance (SGS), whose figures are more closely watched, said exports for the first half of July grew higher by six per cent to 521,655 tonnes, from 492,546 tonnes in June 1-15.

Outlook for palm oil was weakened this week after the official Malaysian Palm Oil Board said physical stocks at end-June were about 16 per cent higher than end-May. It also said Malaysia's crude palm oil output rose 6.41 per cent to 1,169,688 tonnes in June from 1,099,195 tonnes in May.

The third month active contract moved as per expectations. As mentioned in our previous update, though the trend is bearish there are signs of reversal in the making. A move above 1534 MYR/tonne will confirm this view. Initial resistance will now be at 1475 MYR/tonne, which is also a long-term falling trend line resistance point. A break here can extend higher to 1520-35 MYR/tonne levels.

However, failure to extend higher above 1475 MYR/tonne can see prices test the recent low at 1350-65 levels. Preferred view is to look for the support levels to hold for an initial move to 1500 MYR/tonne level and possibly higher from there to 1615 MYR/tonne levels, which is the fibonnaci 38.2 per cent retracement level for the move from 2003 MYR/tonne to 1368 MYR/tonne.

One wave target near the 1365 MYR/tonne has already been met. The move to 2003 MYR/tonne is the end of the fifth wave impulse and a move lower from there is a corrective A-B-C pattern in the making. A new impulse from here can be confirmed only after a daily close above 1520 MYR/tonne.

RSI is now in the neutral zone indicating that it is neither oversold nor overbought. A positive divergence is now seen where prices have made a lower low, which is not confirmed by a lower low in the indicator. The averages in MACD are still below the zero line in the indicator suggesting bearishness. Only a crossover above the zero line will indicate a trend reversal. Positive divergence is noticed in MACD too.

Current prices are higher than the short-term 8-day EMA at 1435 MYR/tonne and the 34-day EMA is now at 1515 MYR/tonne. Look for prices to correct higher. Supports at 1435, 1400 and 1380 ringgits. Resistances at 1475, 1535 and 1585 ringgits.

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

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