The Hindu Business Line : Palm oil may head higher

MALAYSIAN crude palm oil futures jumped higher on the back of strength in overnight CBOT soya oil futures. Soyabean futures on the Chicago Board of Trade hit a 9-1/2-week high on Thursday, with the deferred months making contract highs for the second straight day on renewed technical buying by commodity funds due to weather concerns.

Export figures from cargo surveyors were also encouraging. Societe Generale de Surveillance, the leading surveyor of Malaysian palm oil cargoes, said exports for May 1-25 stood at 1,156,783 tonnes up 29 per cent compared to the same period last month.

European Union is also emerging as an important buyer of edible oil mainly for bio-diesel. With a possibility of a lower crop there and energy prices again on the rise should underpin demand for edible oil. However, higher output in the peak production months is expected to cap any major rise in prices on the back of strength in oil complex as a whole.

The third month active August contract moved higher as per our broad expectations. As mentioned in the previous update, as long as 1,350-60 Malaysian ringgit (MYR) a tonne holds the downside, our favoured view will be to look for a gradual rise towards 1,434 MYR/tonne also being the 200-day EMA level or even higher towards 1,478 MYR/tonne. Only a daily close below 1,338 MYR/tonne will confirm the beginning of a bearish trend.

Prices have broken and closed above the trend line resistance point at 1,415 MYR/tonne. Important support is at 1,408 MYR/tonne followed by 1,397 MYR/tonne. 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. A break below 1,338 MYR/tonne will force us to abandon this wave count and take a fresh view again.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are below the zero line in the indicator suggesting bearishness. Only a crossover of the averages above the zero line now will signal a bullish reversal. Look for prices to test the support levels initially and then head higher.

Supports are at 1,408, 1,397 and 1,380 ringgits. Resistances at 1,423, 1,438 and 1,455 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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