The Hindu Business Line : Palm oil may test support level, rise

MALAYSIAN crude palm oil futures ended lower on Friday owing to the recent strength of the ringgit against the dollar. Despite a strong show from rival CBOT soya oil futures, CPO futures remained subdued due to fears of dollar weakness affecting export prospects.

The third month active front month contract moved higher in line with our expectations. The gap seen in the chart between 1,423-40 Malaysian ringgit (MYR) a tonne, is expected to be filled before the up trend resumes. Crucial support now lies at 1,415 MYR/tonne levels and a daily close below 1,408 MYR/tonne can cast doubts on the strength of the bullishness.

We will stick with our favoured view of a rise higher past 1,447 MYR/tonne in the coming months and target the trend line resistance level at 1490 MYR/tonne or even 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 ending at 1,329 MYR/tonne. The third wave seems to have begun looking to target the 1,600 MYR/tonne levels or even higher. Unexpected break below 1,355 MYR/tonne, will force us to abandon this count.

RSI is in the overbought zone indicating a possible correction to take place. The averages in MACD have gone above the zero line in the indicator suggesting a bullish reversal. Prices are above the short-term 8-day period EMA at 1,424 MYR/tonne and the 34-day period EMA is at 1,416 MYR/tonne. Therefore, look for palm oil futures to test the support levels initially and then rise higher.

Supports are at MYR 1415, 1408 and 1397. Resistances at MYR 1441, 1455 and 1478.

(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.)