The Hindu Business Line : Palm oil could test support levels

Malaysian crude palm oil futures ended higher on Friday on short covering and hopes of better exports in the months ahead. However, a stronger ringgit is seen limiting gains.

The ringgit's surge to eight-year highs would prevent palm oil prices from rising sharply. India's decision to impose new rules on the imports of genetically modified foods is likely to hit soya oil shipments and a blessing in disguise for palm oil imports, as soya oil imports will get more difficult.

Though demand from India, China and Pakistan was sluggish as buyers were hoping prices would fall further because of rising domestic production, while domestic stocks remained high, CPO futures will be underpinned by rising energy prices and value buying will set in on dips.

An important support point at 1408 has been tested, and the market found intermediate support as seen in the bigger picture weekly chart. Important support now lies at 1,385 Malaysian ringgit (MYR) a tonne level being the trend line support point. Immediate resistance will be seen at 1,428-30 MYR/tonne followed by 1,454 MYR/tonne.

We still believe prices could slowly edge higher towards 1,566 MYR/tonne in the coming months or even higher towards 1,600 MYR/tonne as long as 1,380 MYR/tonne remains intact. 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.

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. We can now expect the explosive third wave to begin. Unexpected break below 1,375 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 have gone below the zero line in the indicator suggesting bearishness.

Prices are below the short-term 8-day period EMA at 1,425 MYR/tonne indicating short-term bearishness and the 34-day period EMA is at 1,445 MYR/tonne. Therefore, look for palm oil futures to test support levels and correct higher subsequently. Supports are at MYR 1,410, 1,395 and 1,385. Resistances at MYR 1,430, 1,454 and 1,478.

(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.)

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