The Hindu Business Line : Palm oil futures could rise

MALAYSIAN crude palm oil futures on MDEX closed lower higher on Friday due to a corrective rebound seen in CBOT soya oil values. However, further pushes to the up side were curtailed by as market participants digested the high stock levels of up to 1.305 million tonnes estimated by the private forecaster Ivan Wong for end July.

In his previous report he forecasted production of palm oil at 1.26-27 million tonnes for the month of July. Domestic oil prices in India lent support and helped prices recover from their lows this week. Domestic oils prices in India have been rallying lately due to volatility in crop weather. June-September southwest monsoon rains, which were vital for the farm-dependent economy, were below normal in the first half of the season although they should improve vastly in the next two months. Market friendly export data from the cargo surveyors was completely ignored earlier in the week as the market came to grips with declining soya oil prices at CBOT.

Cargo surveyor Societe Generale de Surveillance (SGS) said it estimated 1,114,671 tonnes of oil palm products in July up by 16.6 per cent from June. The third month active contract moved higher in line with our expectations.

As expected, prices moved above the consolidation range seen for a while now. Resistance will be seen at 1457 Malaysian ringgit (MYR) a tonne followed by 1480 MYR/tonne another important resistance level. Support held well at 1385 MYR/tonne. A break below 1380 MYR/tonne will be bearish for CPO futures. The long-term rising trend line point at 1432 MYR/tonne has been broken and this will act as a good support level.

Our 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 up ward bias.

Current prices are lower than the short-term 8-day EMA at 1424 MYR/tonne and the 34-day EMA is now at 1465 MYR/tonne. Look for prices to head higher. Supports at 1435, 1410 and 1380 MYR. Resistances, at 1457, 1480 and 1535 ringgits.

(The author is associated with 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)

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