The Hindu Business Line : Palm oil may test resistance level

MALAYSIAN crude palm oil futures on BMD ended marginally higher on short-covering ahead of the weekend, but closed off its day's high unable to surpass the recent highs.

Strength in overnight CBOT soya oil futures underpinned CPO futures. The official MPOB data showed that end-February stocks rose 1.5 per cent to 1.54 million tonnes from a month earlier. Exports fell 7 per cent to 9,33,406 tonnes.

Stock levels have hit their highest and with slower exports and freight problems, markets are expected to come under pressure. Palm oil futures have been rising in the past two weeks, reflecting a rally in the US soyabean futures fuelled by worries that dryness is cutting the Brazilian bean crop and the rapid spreading of rust disease in both the US and South America.

Exports continue to decline and till any signs of exports pick-up is seen, CPO futures are expected to move in a range. Societe Generale de Surveillance, a leading surveyor of Malaysian oil palm cargoes, said on Thursday exports for March 1-10 fell 0.2 per cent to 377,407 tonnes from Februar 1-10.

The third month active May contract are consolidating waiting for a bigger move. CPO futures are finding resistance currently at 1,445-50 Malaysian ringgit (MYR) a tonne, which is also the 200-day EMA point.

Initial support is at 1,420 MYR/tonne being the channel support point and as long as 1,377-80 MYR/tonne holds the downside, we can now expect CPO futures to head higher and test the next resistance at 1,478 MYR/tonne or even higher towards 1,500 MYR/tonne.

We have been tracking a bullish reversal right from 1,250 MYR/tonne levels as the weekly charts have been showing signs of strong positive divergences.

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. Wave "C" then possibly ended at 1,252 MYR/tonne. We could have begun a new impulse and a move above 1,459 MYR/tonne will confirm this eventuality.

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

The averages in MACD, are above the zero line in the indicator suggesting a bullish reversal. Current prices are higher than the short-term 8-ay EMA at 1,415 MYR/tonne and the 34-day EMA is now at 1,367 MYR/tonne. Look for prices to consolidate and test the resistance levels. .

Supports 1420, 1395 and 1377 MYR. Resistances at, 1459, 1478 and 1500 MYR.

(The author is associated with the Multi Commodity Exchange of India Ltd. 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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