The Hindu Business Line : Palm oil: Technical signs bearish

MALAYSIAN crude palm oil futures on BMD ended lower on Thursday despite market- friendly export estimates for the period January 1-20. SGS, the leading tracker put shipments of palm oil products for January 1-20, up 4 per cent from the same period last month.

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

Production has been better than expected in recent months and may continue to outperform expectations this month, which means stocks may still stay at a high level by end-January.

Malaysia's palm oil stocks stood at 1.49 million tonnes at the end of December, compared with 1.43 million tones at end-November and 1.17 million tones a year earlier.

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.

The third month active April contract is struggling to cross the psychological 1300 Malaysian ringgit (MYR) a tonne mark. Intermediate support is at 1283 MYR/tonne. Crucial support is at 1233 MYR/tonne made on August 2003, from where the rally to 2003 MYR/tonne began as seen in the chart above.

Though there is a possibility to test this level or even lower at 1,195 MYR/tonne, being the 61.8 per cent Fibonnaci retracement levels for the move from 683-2003 MYR/tonne, favored view is to look for signs of bullish reversal from current levels.

The weekly charts still continue to show signs of reversals, as the positive divergence is very strong. Therefore, it is better to be cautiously bearish from hereon.

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. Wave "A" ended at 1368 MYR/tonne followed by a flat Wave "B" which then hit 1566 MYR/tonne. We could now be in wave "C" targeting lower levels.

RSI is in the oversold zone indicating a correction to take place. 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 1311 MYR/tonne and the 34-day EMA is now at 1358 MYR/tonne. Look for prices to test the support levels and then rise higher. Supports at 1283, 1268 and 1234 ringgits. Resistances at, 1300, 1321 and 1353 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.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Palm oil: Technical signs bearish