The Hindu Business Line : Palm oil may test support level

MALAYSIAN crude palm oil futures on MDEX closed lower on Friday after a sharp fall in overnight CBOT soya oil futures coupled with an unfavourable crop outlook for October and November by the leading private forecaster.

Markets have been betting on a fall in production, which might clear a recent build-up in stocks. Players even ignored a lower-than-expected export performance this week on speculation that November output will see a drop. A spate of public holidays in November and bad weather since the start of this week were seen as important factors for a fall in output of palm oil.

The crop forecaster put October production at 1.375 million tonnes, but left November untouched at 1.4 million tonnes. He also put end-October stocks of palm oil at 1.41 million tonnes, compared to his earlier estimates of 1.44-1.45 million tonnes, but still higher than the official 1.33 million tonnes seen at end-September. Markets will now look forward to official figures from MPOB and export estimates from cargo surveyors for Nov 1-10.

The third month active January contract corrected lower after finding resistance at the 1450 Malaysian ringgit (MYR) a tonne levels. The weekly charts continue to show signs of reversals and therefore believe there is still potential for CPO futures to head higher. CBOT soya oil futures too are showing signs of positive divergence and as we have place a lot of reliance on this pattern, we will continue to maintain our bullish outlook.

The current move has the potential to reach 1519 MYR/tonne a Fibonacci retracement point. Initial resistance will be seen at 1453 MYR/tonne followed by important resistance at 1480 MYR/tonne. Our bullish view would go wrong on a daily close below 1370 MYR/tonne.

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" is still in progress. As wave "A" is also an impulse the first wave of "A" ended at 1785 MYR/tonne followed by the second wave of "A" at 1950 MYR/tonne and the third wave of "A" ended at 1368 MYR/tonne. The fourth wave of "A" then went higher to 1566 MYR/tonne and the fifth wave of "A" currently in progress targeting 1350-60 MYR/tonne levels.

RSI is now in the neutral zone indicating that it is neither overbought nor oversold. It is also showing a positive divergence. The averages in MACD, have gone above the zero line in the indicator which one of the main reasons for our up side bias. MACD is also showing a positive divergence, which is the main reason for our change in view. Current prices are lower than the short-term 8-day EMA at 1426 MYR/tonne and the 34-day EMA is now at 1423 MYR/tonne.

Look for prices to test the support levels and head higher again. Supports at 1410, 1385 and 1365 ringgits. Resistances at 1425, 1453 and 1480 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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