The Hindu Business Line : Palm oil may test support level

MALAYSIAN crude palm oil futures ended sharply lower on Friday owing to disappointing export numbers and weak US soya oil futures. Lack of fresh bullish fundamental leads, is also weighing on the markets.

CBOT soya oil futures has been mixed after rallying sharply earlier in the week on promises of bio-diesel. Energy futures have also taken a beating due to lack of demand owing to high prices and, therefore, having its effect on edible oil futures, which was looked at as an alternative fuel source.

The third month active front month contract moved lower after failing to find support at the key support points. Unexpected break of 1,430 Malaysian ringgit (MYR) a tonne took prices sharply lower and further follow through could even see a test of 1,408 MYR/tonne.

Presently, prices are testing the long-term support at the 200-day EMA point at 1,418 MYR/tonne. Stronger support is seen at 1,408 MYR/tonne, being a fibonnaci retracement level for the move from 1,329 MYR/tonne to 1,495 MYR/tonne. Only a move below 1,393 MYR/tonne will cast doubts on our overall bullish outlook, which we continue to favour in spite of the recent fall in prices.

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 ending at 1,329 MYR/tonne. The third wave seems to have begun looking to target the 1,600 MYR/tonne levels ultimately.

RSI is entering the oversold zone indicating a correction to take place. The averages in MACD are still above the zero line in the indicator suggesting bullishness to be intact. Prices are below the short-term 8-day period EMA at 1,440 MYR/tonne and the 34-day period EMA is at 1,433 MYR/tonne. Therefore, look for palm oil futures to test the support levels and rise higher again.

Supports are at MYR 1,413, 1,408 and 1,393. Resistances at MYR 1,441, 1,465 and 1,478.

(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 hie 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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