The Hindu Business Line : Palm oil may test resistance level

MALAYSIAN crude palm oil futures continued its ascent on Friday in thin trade awaiting export numbers for the period June 1-25. Societe Generale de Surveillance, the cargo surveyor more closely watched by the market, will issue June 1-25 data on Monday against the 1.16 million tonnes it predicted for May 1-25.

Drop in exports should not worry market participants as of now as all eyes are on CBOT, and CPO futures continue to piggy back on the recent strength there due to weather concerns. Expectations of a drop in ending stocks, lower acreage and the threat of soya rust spreading further continues to underpin soya oil futures.

Energy prices too made all-time highs underpinning CPO prices, which is used for bio-diesel. However, peak production coupled with shrinking exports and persistent worries of currency revaluation is expected to cap the potential for CPO prices to rise sharply higher along with soya oil.

The third month active September contract is still seen moving in a broad range. Unlike CBOT soya oil futures, CPO futures are still stuck in a range and only a break of 1478 Malaysian ringgit/tonne will trigger bullishness and possible buy-stops. This level also has another important technical significance.

An inverse head and shoulder pattern is in the making with the 1475-78 as the neckline point seen in the chart above. This is an extremely bullish pattern targeting 1700 MYR/tonne. We have continuously maintained 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 CBOT soya oil futures and our view stands vindicated.

The move to 2003 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. The correction ended at 1252 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 strong third wave is to begin anytime soon.

RSI is in the overbought zone indicating a possible correction to take place lower. The averages in MACD are above the zero line in the indicator suggesting bullishness. Only a crossover of the averages below the zero line now will signal a bearish reversal. Therefore, look for prices to test the resistance levels with some intermediate corrections and profit-taking.

Supports are at 1423, 1408 & 1395 ringgits. Resistances at 1455, 1478 & 1507 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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Palm oil may test resistance level