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Gnanasekar. T

Malaysian crude palm oil futures closed higher on Friday on short-covering and helped by a good recovery in energy prices. Earlier, energy prices tumbled around 20 per cent over the past two months, the steepest fall since the Gulf War in 1991, hitting vegetable oils like soyabean oil and palm, which are increasingly being used to produce bio-fuels.

Though energy prices tend to support CPO futures temporarily, piling stocks and lower exports will keep prices under pressure.

CPO active December month futures fell lower as expected. Good support was seen at 1520 Malaysian ringgit (MYR) tonne and a break above 1552 MYR/tonne has given rise to hopes of the pullback to continue and extend higher to 1590 MYR/tonne or even higher to 1615 MYR/tonne.

We expect good resistance at 1615-1622 MYR/tonne levels to cap any major advances in the near-term. Unexpected fall below 1517 MYR/tonne has the potential to extend lower to 1485 MYR/tonne levels, which happen to be the long-term trend line support point and subsequently resume the up trend.

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 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 1540 MYR/tonne indicating short-term bullishness and the 34-day period EMA is at 1565 MYR/tonne. Therefore, look for palm oil futures to test the resistance levels in the coming week.

Supports are at 1536, 1517 and 1504 ringgits. Resistances are at 1578, 1590 and 1615 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.)

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