The Hindu Business Line : Palm oil may head higher

MALAYSIAN crude palm oil futures on BMD ended higher on Tuesday helped by a recovery in CBOT soya oil futures coupled with short-covering amid a thin trade ahead of a long market break.

The third month active April contract has retraced some of its losses finding intermediate support at 1,250 Malaysian ringgit (MYR) a tonne levels. 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. A daily close above 1,321 MYR/tonne has the potential to take CPO futures to 1,353 MYR/tonne initially or even higher towards 1,389 MYR/tonne the falling trend line resistance point as seen in the chart above.

As mentioned earlier, 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 between 1,233- 1,254 MYR/tonne. 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 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 neutral zone now indicating that it is neither overbought nor oversold. 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 1,279 MYR/tonne and the 34-day EMA is now at 1,322 MYR/tonne. Look for prices to head higher and test the resistance levels. Supports at 1,270, 1,252 and 1,233 ringgits. Resistances at 1,305, 1,321 and 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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