The Hindu Business Line : Palm oil may test resistance levels

MALAYSIAN crude palm oil futures on MDEX rallied higher on Friday to two-month highs due to good physical activity and a strong recovery in overnight soya oil values. CPO futures could now follow CBOT soya oil prices closely for further direction.

Good physical buying added to the positive momentum and discarded the disappointing export figures from the cargo surveyor SGS on Thursday. Societe Generale Surveillance (SGS), whose figures are more closely watched by the market, said exports were up only 4.8 per cent to 9,31,384 tonnes in the August 1-25 period from 8,89,068 tonnes during July 1-25.

The estimated of Mr Ivan Wong, the private forecaster, last Friday drove the market lower. He said Malaysia's palm oil output in August would be 1.34 million tonnes, almost 6 per cent higher than the official figure of 1.27 million tonnes in July. He predicted palm oil stocks at the end of August of 1.37-1.38 million tonnes, up from the official figure of 1.02 million tonnes at the end of July.

The third month active contract moved higher in line with our expectations. The psychological resistance level at 1500 Malaysian ringgit (MYR) a tonne was broken which paved the way for further highs. Support should be seen at 1485-90 MYR/tonne levels now.

As we have been maintaining, we view the current move as a bullish correction in progress and 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 point 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 1600 MYR/tonne.

RSI is in the overbought zone indicating a correction to take place. The averages in MACD, have gone above the zero line in the indicator suggesting a bullish reversal. Positive divergence in the indicators was one of the important reasons for our up ward bias. Current prices are higher than the short-term 8-day EMA at 1486 MYR/tonne and the 34-day EMA is now at 1465 MYR/tonne.

Look for prices test the resistance levels. Supports at 1500, 1485 and 1465 ringgits. Resistances, at 1545, 1580 and 1615 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.)

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