The Hindu Business Line : Palm oil may test resistance level

Malaysian crude palm oil futures ended higher Friday as fears of haze from Indonesian forest fires resurfaced. The Haze had disrupted production and is expected to keep the market on its toes.

Earlier this month, futures tumbled lower on estimates from the official MPOB, which expected output to rise by 7 per cent. Rebound in palm oil exports also lent support to the market.

Societe Generale de Surveillance (SGS), the leading surveyor of Malaysian palm oil exports, said this week it estimated shipment of 571,006 tonnes for August 1 to 15, up 17 per cent compared with the same period last month.

Energy futures are on the rise and expected to rise further on supply concerns. This factor too should lend good support to palm oil, which is used as bio-diesel.

Barring the narrowing of discount between palm and soy, CPO futures is expected to be buoyed by concerns over haze, up coming festival demand and rise in energy prices.

The third month active November contract is moving in line with our expectations rising higher after testing the support levels.

Good support has been noticed at 1,365-68 Malaysian ringgit (MYR) a tonne levels. Strong support will now be seen at 1,378-80 MYR/tonne followed by 1,365 MYR/tonne levels. Only a daily close below 1,320 MYR/tonne will negate any bullish expectations we have had till now and test the psychological 1300 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 1446 MYR/tonne will be seen as a sign of resumption in the bullish trend.

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 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 1,377 and the 34-day period EMA is at 1382 MYR/tonne. Therefore, look for prices to test the resistance levels.

Supports at MYR 1,365, 1,353 and 1,328. Resistances at MYR 1,408, 1,427 and 1,446 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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