The Hindu Business Line : Palm oil may move higher

MALAYSIAN crude palm oil futures on MDEX closed higher on Wednesday helped by gains in the overnight CBOT soya oil futures coupled with short-covering ahead of a long holiday. The market is closed from Thursday through Tuesday to mark the Hindu Diwali and Muslim Eid al-Fitr festivals, reopening on Nov. 17.

Markets have been speculating that November output will see a drop due to a spate of public holidays in November and bad weather. The recent soya rust disease in the US has provided fresh momentum to a market, which has been reeling under selling pressure due to higher production and falling exports.

Export figures for the period November 1-10 came in below expectations. However, friendly palm oil output and closing stocks numbers for October, released by the official Malaysian Palm Oil Board (MPOB) during the week, helped sentiment. The MPOB, said production stood at 1,326,323 tonnes in October, down 8.46 per cent from September. Although exports fell 9.84 per cent to 1,165,214 tonnes, closing stocks for October only rose 1.92 per cent to 1,358,799 tonnes, it said.

The third month active January contract is consolidating in the broad range of 1395-1450 Malaysian ringgit (MYR) a tonne levels. Strong resistance is seen at 1450 MYR/tonne levels. The weekly charts continue to show signs of reversals and therefore believe there is still potential for CPO futures to head higher.

Our bullish view would go wrong on a daily close below 1370 MYR/tonne. 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.

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" possibly got over at 1353 MYR/tonne.

We could now be in a corrective wave "B" structure. RSI is 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 higher than the short-term 8-day EMA at 1417 MY/tonne and the 34-day EMA is now at 1424 MYR/tonne. Look for prices to move higher. Supports at, 1410, 1385 and 1365 ringgits. Resistances at, 1430, 1453 and 1480 ringgits.

(The author is associated with The Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not necessarily that of his employer. This analysis is based on historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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