The Hindu Business Line : Palm oil may test resistance level

MALAYSIAN crude palm oil futures on BMD ended higher triggered by hopes of revival in exports. The two cargo surveyors are expected to release their estimates for January 1-15.

CPO futures tumbled lower after export estimates for the period January 1-10 fell way below market expectations, increasing fears of mounting stocks.

SGS, the leading cargo surveyor estimated a 16 per cent drop in export of palm oil products for January 1-10 sparking fears of mounting stocks.

However, recent slide in prices has made palm oil prices cheaper resulting in improved sales.

The official Malaysian Palm Oil Board surprised the market when it said palm oil stocks at end-December stood at only 1.49 million tonnes, lower than market expectations.

However, it said output of crude palm oil jumped nearly 5 per cent last month.

Soya oil futures on the CBOT, too, recovered from their recent lows underpinning CPO futures.

The third month active March contract moved as per our expectations. Prices found good support at the psychological 1,300 Malaysian ringgits (MYR) a tonne level.

Next important resistance will be at 1,350 MYR/tonne followed by 1,385 MYR/tonne now. There is a possibility of one more move below 1,300 MYR/tonne before it decisively bounces higher.

As mentioned before, favoured view in the coming month will be to look for prices to test below 1,353 MYR/tonne levels and then bounce higher from there.

The medium to longer-term price structures look strong and, therefore, it is advisable to be cautiously bearish below the 1,350 MYR/tonne levels.

The weekly charts still continue to show signs of reversals though there is downward pressure in the short-term. The move to 2,003 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 "B" ended at 1,478 MYR/tonne.

As wave "A" is an impulse the first wave of "A" ended at 1,785 MYR/tonne followed by the second wave of "A" at 1,950 MYR/tonne and the third wave of "A" ended at 1,368 MYR/tonne.

The fourth wave of "A" then went higher to 1,566 MYR/tonne and the fifth wave of "A" got over at 1,353 MYR/tonne levels. Wave "B" then begun from there and tested 1,478 MYR/tonne.

We could now be in wave "C" targeting lower levels.

RSI is in the neutral zone indicating that it is neither oversold nor overbought.

The averages in MACD, are still below the zero line in the indicator suggesting bearishness.

Current prices are lower than the short-term 8-day EMA at 1335 MYR/tonne and the 34-day EMA is now at 1374 MYR/tonne.

Look for prices to test pullback higher and test the resistance levels. Supports at, 1320, 1300& 1283 ringgits. Resistances at, 1353, 1365 & 1385 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 o f 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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Palm oil may test resistance level