The Hindu Business Line : Palm oil may consolidate

MALAYSIAN crude palm oil futures on BMD ended higher after data showing exports picking up after a weak start earlier this month. Exports were officially up 27 per cent in March and the market had feared a sharp consolidation in April after seeing numbers for the first 10 days.

However, concerns over weak exports and higher production prevail. Fundamentally, demand growth was clearly slowing and production is on the rise. Official supply-demand figures for March, released during the week by state-run Malaysian Palm Oil Board, came in better than market expectation, but did not help in boosting prices higher.

The third month active June contract is struggling to get any momentum on the upside and is seen capped at 1,445-50 Malaysian ringgit (MYR) a tonne. Only a daily close above 1,478 MYR/tonne should set the trend higher towards 1,535 MYR/tonne levels. Intermediate support is seen at 1,410 MYR/tonne levels and an unexpected break here can target the next important support at 1,385 MYR/tonne.

Favoured view is to look for prices to head higher towards 1,535 MYR/tonne levels in the medium-term. 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 1566 MYR/tonne. Wave "C" then possibly ended at 1,252 MYR/tonne. We are possibly in a new impulse with the first wave of the impulse ending at 1,504 MYR/tonne and the second wave in progress in a triangle pattern.

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 lower than the short-term 8-day EMA at 1,423 MYR/tonne and the 34-day EMA is now at 1,416 MYR/tonne. Look for prices to consolidate and test the resistance levels. Supports are at 1,409, 1,395 and 1,377 ringgits. Resistances at 1,438, 1,450 and 1,478 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 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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