The Hindu Business Line : Palm oil may correct lower

MALAYSIAN crude palm oil futures ended higher on Friday on short-covering due to lack of fresh leads from the US markets, which was closed for Thanksgiving holidays.

Despite prevailing negative factors in the markets, palm oil futures have managed to stay above the psychological 1,400 Malaysian ringgit (MYR) a tonne level, an indication that market participants have discounted negative factors.

The third month active front month contract moved in line with our expectations. Immediate resistance will be seen at 1,423 MYR/tonne being the trend line resistance point and the 200-day EMA level.

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. Crucial support now lies at the long-term trend line support point at 1,374 MYR/tonne. And as long as this level holds, CPO futures are expected to rise higher in the coming months.

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 in the neutral zone indicating that it is neither overbought nor oversold. It is also showing a positive divergence, where the price makes a lower low not confirmed by a lower low in the indicator. The averages in MACD are below the zero line in the indicator suggesting bearishness.

Prices are above the short-term 8-day period EMA at 1,416 MYR/tonne and the 34-day period EMA is at 1,425 MYR/tonne. Therefore, look for palm oil futures to test the resistance levels and correct lower subsequently.

Supports are at 1,408, 1,393 and 1,374 ringgits. Resistances at 1,425, 1,441 and 1,458 ringgits.

(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 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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