The Hindu Business Line : Palm oil may rise higher

MALAYSIAN crude palm oil futures ended lower on Friday after data showed weak exports for the period July 1-15. Societe Generale de Surveillance, the leading surveyor of Malaysian palm oil shipments, said on Friday exports for July 1-15 were down 27 per cent to 488,066 tonnes from the 669,259 tonnes estimated for June 1-15.

CPO futures have been advancing slowly helped by a rise in values of CBOT soya oil futures, but fundamentals for palm have been depressing with high ending-stocks, poor exports and the prevailing peak production season. The only respite this week was the official MPOB's estimates falling better than market expectations.

The official Malaysian Palm Oil Board (MPOB) said on Monday that stocks carried forward into July were 8.64 per cent lower than the June level. It also said production for June was 7.14 per cent lower than May.

The third month active September contract is still seen moving in a broad range. No change in view. Strong support will now be noticed at 1393-95 levels also being the trend line support point as seen in the chart above. CPO futures are still stuck in a range and only a break of 1,478 Malaysian ringgit (MYR) a 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 1,475-78 as the neck-line point seen in the chart above. This is an extremely bullish pattern targeting 1,700 MYR/tonne. As long as 1,365 MYR/tonne holds the downside, expect CPO futures to rise higher towards 1,535 initially followed by the next important psychological resistance at 1,600 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. The correction 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 strong third wave is to begin anytime soon.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. 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 1,419 and the 34-day period EMA is at 1,414 MYR/tonne.

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

Supports are at 1,408, 1,395 and 1,385 ringgits. Resistances at 1,427, 1,455 and 1,478 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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