The Hindu Business Line : Palm oil may test resistance level

Markets were in a bullish mood anticipating better export numbers for the period March 1-20 from the two cargo surveyors. Preliminary export estimates of palm oil for mid-March from cargo surveyors, showed a drop of 0.6-3 per cent from a month ago.

The catalyst for this week's rally was the announcement of favourable import duties in major importer India.

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. .The third month active June contract zoomed higher and tested the resistance levels as per our expectations.

After testing the psychological 1,500 Malaysian ringgit (MYR) a tonne, prices have been under pressure.

Prices have also closed below the 200-day EMA, an indication of bearishness.

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 again.

It is important for prices to hold support at 1,377-80 also being the fibonnaci retracement level. 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 are possibly in a new impulse and a corrective wave movement after the 1,500 MYR/tonne has been tested. 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-day EMA at 1,445 MYR/tonne and the 34-day EMA is now at 1,390 MYR/tonne. Look for prices to test the support levels and then rise higher again. Supports are at 1,420, 1,395 and 1,377 ringgits. Resistances at 1,459, 1,478 & 1,500 ringgits.

(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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