The Hindu Business Line : Palm oil may hold to support, rise

MALAYSIAN crude palm oil futures ended higher on Friday on short-covering despite CBOT soya oil futures retreating lower throughout the week. Worsening haze from Indonesian forest fires supported the market and pulled it higher from recent lows. Record high crude oil prices have also underpinned CPO futures, as it would trigger more purchases of bio-fuels.

The government-run Malaysian Palm Oil Board released its official production, exports and closing stock numbers for July, which was considered bearish. Malaysia's crude palm oil output rose 7.0 per cent to 1,291,141 tonnes in July from 1,206,718 tonnes in June. MPOB said palm oil closing stocks at end-July totalled 1,272,757 tonnes, up 7.43 per cent from a revised 1,184,753 tonnes at end-June.

Export estimates however, came in higher than market expectations. Societe Generale de Surveillance, the leading surveyor of Malaysian oil palm cargoes, estimated exports for August 1-10 had grown almost 19 per cent from July 1-10.

The third month active October contract moved as per our expectations pulling back after testing the support levels. As expected prices tested the channel trend line support point near 1,325 Malaysian ringgit (MYR) a tonne and bounced higher sharply. Only a daily close below 1,320 MYR/tonne will negate any bullish expectations we have had till now and test the psychological 1,300 MYR/tonne or even lower.

We have still not given up the bullish view, and expect support levels to hold. Major resistance will be seen at 1,427-30 MYR/tonne again a trend line resistance point. A daily close above the fractal top of 1,446 MYR/tonne will be seen as a sign of resumption in the bullish trend.

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. A strong third wave is to begin anytime soon.

RSI is in the neutral zone now also displaying a positive divergence another reason for last week's pullback. The averages in MACD are still below the zero line in the indicator suggesting bearishness. Only a crossover of the averages above the zero line again will signal a clear bullish reversal.

Prices are above the short-term 8-day period EMA at 1,362 and the 34-day period EMA is at 1,381 MYR/tonne. Therefore, look for prices to hold support and move higher.

Supports are at 1,353, 1,330 and 1,321 ringgits. Resistances are at 1,385, 1,408 and 1,427 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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