The Hindu Business Line : Palm oil may head higher

MALAYSIAN crude palm oil futures on MDEX closed higher on Friday due to a corrective rebound seen in CBOT soya oil values after a surprisingly smaller-than-expected forecast for the 2004 US soyabean by the USDA.

Short-covering after Thursday's weak close helped add to the positive sentiment. Markets will now look forward to the export estimates for the first half of August on Monday for direction. SGS, whose figures are more closely watched by the market, had estimated exports for August 1-10 at 317,681 tonnes up just 3.4 per cent from the 306,662 tonnes shipped in July 1-10. Strong exports are needed this month to curtail further inventory building.

Data from MPOB was considered neutral. MPOB put palm oil production in July at 1.27 million tonnes, higher than the 1.23 million tonnes estimated by the market's top forecaster Mr Ivan Wong but gave a lower closing stock of 1.29 million tonnes for last month, compared with his estimate of 1.32 million tonnes. It also estimated a higher export number of 1.11 million tonnes, compared to his forecast of 1.06 million tonnes.

The third month active contract moved higher in line with our expectations. No change in view. Resistance will be seen at 1457 Malaysian ringgit (MYR) a tonne followed by 1480 MYR/tonne another important resistance level. Support held well at the psychological 1400 MYR/tonne level, which is also the long term falling trend line support point. A break below 1380 MYR/tonne will be bearish for CPO futures.

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 upward bias. Current prices are lower than the short-term 8-day EMA at 1423 MYR/tonne and the 34-day EMA is now at 1455 MYR/tonne. Look for prices to head higher. Supports, at, 1430, 1410 and 1380 MYR. Resistances, at 1457, 1480 and 1535 MYR.

(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
Review of farm credit after Budget session: Chidambaram

Palm oil may head higher