The Hindu Business Line : Palm oil may correct lower

Malaysian crude palm oil futures ended sharply higher on Friday on good fund buying and supportive fundamentals. Expectation of robust demand and decline in July production due to dry weather fuelled prices higher.

Export figures were also supportive. Cargo surveyor Societe Generale de Surveillance, whose estimates are closely watched by market participants said exports of palm products for July 1-25 stood at 954,687 tonnes, up 12.4 per cent from 849,560 tonnes shipped between June 1 and 25.

CPO active month futures are moving perfectly in line with our expectations. As mentioned in the previous update, prices met an initial target at 1631 Malaysian ringgit/tonne. Stronger resistance will be seen at 1677-78 MYR/tonne levels. As seen in the chart above, crucial resistance is at 1752 MYR/tonne levels. Declines should now be well supported at 1595 MYR/tonne levels.

Only a move below 1542 MYR/tonne can hint at a deeper correction lower. We will continue to stick with the same favoured wave counts. The move to 2003 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 now in a new impulse with the first wave of the impulse ending at 1,504 MYR/tonne and the second wave ending at 1329 MYR/tonne. With the way prices have shot, it makes us believe that the third wave is in progress.

RSI is in overbought zone indicating a possible correction lower. The averages in MACD are above the zero line in the indicator suggesting bullishness. Prices are above the short-term 8 period EMA at 1574 MYR/tonne and the 34 period EMA is at 1525 MYR/tonne. Therefore, look for palm oil futures to test the resistance levels and correct lower subsequently.

Supports are at 1595, 1570 and 1542 ringgits. Resistances are at 1645, 1678 and 1752 ringgits.

(The author is the director of Commtrendz Research and in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of MCX. 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.)

Gnanasekar. T

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