The Hindu Business Line : Palm oil may consolidate, rise

MALAYSIAN crude palm oil futures on MDEX closed lower on Friday due to persistent weakness in CBOT soya oil values and absence of any crucial leads, which lead to weekend liquidation of positions.

Markets are keenly awaiting the export estimates of palm oil for the month of July due from the two cargo surveyors on Monday. Societe Generale de Surveillance (SGS), the cargo surveyor whose figures are more closely watched, estimated that July 1-25 exports were at 889,068 tonnes compared to 816,853 tonnes, it estimated for June 1-25.

Recovery was seen in crude palm oil futures after prices hit a low of 1368 Malaysian ringgit (MYR) a tonne earlier on better export performance. Renewed demand from China and India helped palm oil prices hold firm during the week in spite of a unstoppable CBOT soya oil decline.

Strong domestic selling prices and declining stock levels have encouraged fresh demand this week from China, one of the world's largest consumers of palm oil. The Indian monsoons situation will be watched closely for signs of pickup in demand.

Oilseeds crop this year would be lower in India than the previous year due to deficient monsoons so far. However, revival of rains in recent days could limit the damage.

The third month active contract is consolidating at the current levels. Prices are trapped in a range now with support at 1410 MYR/tonne and resistance at 1435-40 MYR/tonne. Our view now remains neutral, with a bias towards the upside as long as 1400 levels hold.

Resistance will now be between 1450-57 MYR/tonne. However, a break below 1380 MYR/tonne will be bearish for CPO futures as our short term bullish view will be negated there. Preferred view still, is to look for the support levels to hold for an initial move to 1535 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 the low of 1368 MYR/tonne 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.

Positive divergence in the indicators is one of the important reasons for our upward bias. Current prices are lower than the short-term 8-day EMA at 1438 MYR/tonne and the 34-day EMA is now at 1481 MYR/tonne.

Look for prices to consolidate and move higher. Supports at 1410, 1400 and 1380 ringgits. Resistances at 1457, 1480 and 1535 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. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

More Stories on : Technical Analysis | Oilseeds & Edible Oil

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Palm oil may consolidate, rise