The Hindu Business Line : Palm oil may correct lower

MALAYSIAN crude palm oil futures ended slightly higher on Friday due to short-covering on expectations of better export performance for the whole of August. But gains are expected to be limited due to weak soya oil prices and rising palm oil production.

Societe Generale de Surveillance (SGS), estimated Malaysian palm oil shipments, rose by just 10 per cent for August 1-25 exports, compared to the same period last month. Haze fears receded with steady rains seen during the week. Markets had expected a possible reduction in productions levels due to the haze.

The official Malaysian Palm Oil Board will issue official production, export and stock numbers for August on Sept. 12. Energy futures are on the rise and expected to rise further on supply concerns. This factor coupled with the up coming festival demand in top consumer India should lend good support to palm oil, which is also used as bio-diesel.

The third month active November contract moved lower against our expectations. Support at 1,365 Malaysian ringgit (MYR) a tonne levels is still seen holding. Another important support is seen at 1,353 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 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. Only a daily close above the fractal top of 1,446 MYR/tonne will be seen as a sign of resumption in the bullish trend. Our favoured view still is to look for the support levels to hold and rise higher. 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 1,375 and the 34-day period EMA is at 1,380 MYR/tonne. Therefore, look for prices to correct lower and test the support levels. Supports are at MYR 1,365, 1,353 and 1,328. Resistances at MYR 1,385, 1,397 and 1,408 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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