The Hindu Business Line : Palm oil may head lower

MALAYSIAN crude palm oil futures on MDEX closed sharply lower as weaker fundamentals erased most of the gains made during the week. Worries over falling exports and rising stocks are seen pressuring the market. Exports are not expected to pick up in the coming months as the major consumers have stocked ahead of the festive season.

Two cargo surveyors, Societe Generale de Surveillance and Intertek Testing Services, will release their estimates for October 1-10 exports on Monday. Mr Ivan Wong, the private forecaster, in his report this week painted a bearish picture. He said Malaysia's palm oil output in August was expected to touch 1.45 million tonnes, exports of palm oil in September at 1.25 million tonnes and end-September stocks of palm oil at 1.33 million tonnes, compared with the official 1.26 million tonnes at end-August.

The third month December active contract moved higher and then pulled back lower in line with our expectations.

The pullback we expected went beyond our expectations, but fell back lower at the end of the week. Minor head and shoulder pattern is seen with neckline at 1391 Malaysian ringgit (MYR) a tonne and a break there targeting 1210-1250 MYR/tonne.

Long-term support point at 1399 MYR/tonne has also held well so far, which happens to be the long-term rising trend line point as seen in the chart above. As mentioned in the previous week's update, the current price structures do not favour an up move and a daily close below 1380 MYR/tonne will lead to a sharp fall. 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. We now believe wave "A" got over at 1368 MYR/tonne followed by wave "B" which hit 1566 MYR/tonne. A wave "C" has possibly begun from there. This will be confirmed on the break of 1368 MYR/tonne.RSI is now in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line in the indicator suggesting bearishness, which is one of the main reasons for abandoning our bullish view. Current prices are higher than the short-term 8-day EMA at 1438 MYR/tonne and the 34-day EMA is now at 1450 MYR/tonne. Look for prices to head lower. Supports at 1410, 1399 and 1380 MYR. Resistances at 1445, 1457 and 1465 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.)

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