The Hindu Business Line : Palm oil may head higher

MALAYSIAN crude palm oil futures retraced higher on Friday after a fresh rally in overnight CBOT soya oil futures. Volumes were thin ahead of a long weekend in the US. The Chicago Board of Trade, which trades soyabean and soya products, will be closed on Monday for US Independence Day.

September palm oil fell sharply lower on Thursday, after Societe Generale de Surveillance, the main surveyor of Malaysian oil palm cargoes, said exports dipped 9.5 per cent in June from the previous month. Though CPO futures reacted to the numbers, the news was mostly factored and market participants again focused on CBOT for further direction.

Although CBOT soya oil futures look set to rise higher on weather and soy rust concerns, 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, while CBOT soya oil futures corrected lower on profit taking. 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/ton. Trend line support will now be seen between 1382-85 MYR/tonne on the downside and as long as 1365 MYR/tonne holds the downside, expect CPO futures to rise higher.

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. Prices are below the short-term 8 period EMA at 1417 and the 34 period EMA is at 1410 MYR/tonne.

Therefore, look for prices to test the support levels and rise higher subsequently.

Supports are at 1408, 1395 & 1385 ringgits. Resistances at, 1423, 1455 & 1478 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 head higher