The Hindu Business Line : Palm oil may test support level

MALAYSIAN crude palm oil futures on BMD ended firmer on Friday on hopes that export activity was picking in the month of May. In the absence of further market moving news, CPO futures headed lower following overnight CBOT soya oil, which was mostly range-bound. Concerns over weak exports and higher production prevail.

Exports of Malaysian palm oil products for April stood at 11,45,153 tonnes, down 6.2 per cent, cargo surveyor SGS said on Tuesday. Fundamentally, demand growth was clearly slowing and production is on the rise. Moreover, talks of possible revaluation of the Chinese currency yuan is also seen pressuring CPO prices. A possible revaluation of the yuan could lead to re adjustment of the ringgit peg at 3.8 to the dollar.

The third month active July contract headed lower after failing to cross the 1,445-50 Malaysian ringgit (MYR) a tonne levels decisively. Near-term support is at 1,405-10 MYR/tonne and a break below that level should open the downside for 1,385 MYR/tonne. Still, our favoured view is to look for prices to head higher towards 1,535 MYR/tonne levels in the medium-term.

Only a daily close above 1,478 MYR/tonne should set the trend higher towards 1,535 MYR/tonne levels. 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 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 have gone below the zero line in the indicator suggesting bearishness. Current prices are lower than the short-term 8-day EMA at 1,439 MYR/tonne and the 34-day EMA is now at 1,425 MYR/tonne. Look for prices to test the support levels.

Supports are at 1,405 MYR, 1,385 MYR and 1,370 MYR. Resistances at, 1423 MYR, 1,438 MYR and 1,455 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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