The Hindu Business Line : Palm oil may test support level

MALAYSIAN crude palm oil futures ended higher recovering from early lows helped by friendly supply/demand data from MPOB. Data from the Malaysian Palm Oil Board (MPOB), showed a sharp drop in opening stocks of June.

Palm oil stocks at end-May, which form the opening inventories for June, were down 12.42 per cent compared with the previous month. Output for the same period was estimated 4.21 per cent higher and exports 22.36 per cent higher in May. Markets are still leaning on CBOT for fresh leads.

CBOT soya oil futures too are stuck in a range waiting for fresh triggers. Threat of soya rust is seen increasing in the wake of a potential tropical storm headed to the US coast, which will aid in spreading further.

Energy prices are headed higher due to supply disruptions in the US, underpinning CPO prices, which is used for bio-diesel. However, peak production coupled with shrinking exports and persistent worries of currency revaluation will cap the potential for CPO prices to rise sharply higher with soya oil.

The third month active August contract is seen see-sawing in a broad range. Prices are now inclined to test the trend channel support point at 1,345 Malaysian ringgit (MYR) a tonne on the downside. Lack of buying support above 1,400 MYR/tonne has led to long liquidation and with CBOT also not showing a clear direction, CPO futures are vulnerable to test the support levels in the coming week.

We have been maintaining our favoured view, for prices to hold at 1,345-50 MYR/tonne levels and rise higher from there mainly due to a positive consolidation pattern in both CBOT soya oil and CPO futures.

However, a daily close below 1,338 MYR/tonne will negate this expectation and confirm the beginning of a bearish trend initially targeting 1,298 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 1368 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.

Supports are at 1,360, 1,345 and 1,320 ringgits. Resistances at 1,385, 1,408 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.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Technicals point upside for gold

Palm oil may test support level