The Hindu Business Line : Palm oil may test resistance level

MALAYSIAN crude palm oil futures ended higher on Friday on expectations of better performance. Futures have been uneventful the whole week without any clear direction and consolidation bracing itself for the next move. Most negative factors have been more or less discounted. Higher stocks and higher production coupled with poor export performance have weighed on the markets till now.

However, Malaysia's palm oil production could also fall in December as the rainy season had started in the world's largest producer and could hamper harvesting.

The third month active front month contract is seen consolidating showing signs of bullishness again. After testing important support at 1,378-80 Malaysian ringgit (MYR) a tonne levels, prices have recovered and is seen stuck in a narrow range, which normally signals the beginning of an impulsive move. Crucial support now lies at the long-term trend line support point at 1,397-40 MYR/tonne. And as long as 1,375 MYR/tonne level holds, CPO futures are still expected to rise higher in the coming months.

Initial resistance will now be seen 1,423 MYR/tonne levels. 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. Unexpected break below 1,355 MYR/tonne will force us to abandon this count.

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 1,407 MYR/tonne and the 34-day period EMA is at 1,416 MYR/tonne. Therefore, look for palm oil futures to test the resistance levels.

Supports are at 1397, 1385 and 1375 ringgits. Resistances at 1423, 1435 and 1458 ringgits.

(The author is associated with the Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not that of his employer. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)