The Hindu Business Line : Palm oil may rise

MALAYSIAN crude palm oil futures on BMD ended marginally higher on Friday due to short covering. Markets will look forward to export estimates for the month of January next week, for direction.

Two surveyors of Malaysian oil palm cargoes, Intertek Testing Services (ITS) and Societe Generale de Surveillance (SGS), are to issue the export estimates on Monday.

SGS, which is more closely followed, had put estimates for December at 1.13 million tonnes. Recent fall in prices can be attributed to drop in estimates of Malaysian oil palm products for the period of January 1-25 versus December 1-25.

Societe Generale de Surveillance, a leading tracker of Malaysian oil palm cargoes, said on Wednesday shipments for the first 25 days of January were down 2 per cent from a month ago, 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.

The third month active April contract has found minor support at 1,280 Malaysian ringgits (MYR) a tonne level. Crucial support is at 1,233 MYR/tonne made on August 2003, from where the rally to 2,003 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 683-2,003 MYR/tonne, favoured view is to look for signs of bullish reversal.

The weekly charts still continue to show signs of reversals, as the positive divergence is very strong. Also, indicators are in oversold territories and showing positive divergences.

Therefore, it is better to be cautiously bearish from hereon. 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.

Wave "A" ended at 1,368 MYR/tonne followed by a flat Wave "B" which then hit 1,566 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 1,296 MYR/tonne and the 34-day EMA is now at 1,342 MYR/tonne.

Look for prices to test the support levels and then rise higher. Supports at 1,276, 1,262 and 1,251 ringgits. Resistances at 1300, 1,321 anf 1,353 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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Palm oil may rise