The Hindu Business Line : Palm oil may head lower

MALAYSIAN crude palm oil futures ended higher on Friday above the psychological level of 1,400 Malaysian ringgit (MYR) a tonne. Though the fundamentals are not very supportive due to swelling physical stocks, CPO futures are still moving in a broad range on dearth of positive leads.

Though negative factors have not had any major effects on prices till now, the stock situation is quite alarming.

The third month active front month contract slid lower against our expectations. Resistance is now quite strong at 1,420 MYR/tonne levels also being the important 200-day EMA level as seen in the chart above. Crucial support now lies at the long-term trend line point at 1,385-86 MYR/tonne levels. We are now tracking a head and shoulder pattern, which can potentially be bearish for CPO futures.

A daily close below 1,370 MYR/tonne can have bearish implications. As long as 1,420-25 MYR/tonne levels caps the up side, look for prices to eventually fall lower towards 1,330 MYR/tonne levels or even lower. 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. 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 1,402 MYR/tonne and the 34-day period EMA is at 1,412 MYR/tonne. Therefore, look for palm oil futures to test the support levels and fall lower.

Supports are at 1385, 1354 and 1330 ringgits. Resistances at 1410, 1423 and 1435 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.)