The Hindu Business Line : Palm oil likely to test resistance

Malaysian crude palm oil futures ended lower on Friday on profit booking ahead of the weekend. Strong demand and tightening supplies is expected to keep prices underpinned in the coming sessions. The export figures also confirm a robust pick up in demand.

Exports of Malaysian palm oil products during April 1-20 jumped to 32.3 per cent to 7,89,644 tonnes. The current rally is mostly driven by fear of supply disruptions. However, there are fears that the recent sharp rise in prices could suppress demand overall.

CPO active July contract hit resistance levels and corrected lower. Prices came close to testing 2295 Malaysian ringgit (MYR) tonne this week. Important thing to note is a weekly down close after five consecutive positive weeks. In technical terms, this typically signifies that we are either at a near-term top, or close to it. This coupled with indicators displaying highly overbought conditions warns of a deep correction in the offing.

Important resistance is at 2245-50 MYR/tonne levels. Daily close above 2250 MYR/tonne can open the way for a rise to 2352 MYR/tonne, which we do not favour. A new impulse began from 1427 MYR/tonne as per the recent wave counts. We are in the beginning of the fifth wave move of that impulse.

RSI is in the overbought zone indicating a possible correction lower. The averages in MACD are still above the zero line in the indicator suggesting bullishness to be intact. Prices are below the short-term 8 period EMA at 2181 MYR/tonne indicating short-term bearishness and the 21 period EMA is at 2125 MYR/tonne. Therefore, look for palm oil futures to test the resistance levels and then correct lower.

Supports are at 2145, 2076 and 2045 ringgits. Resistances are at 2245, 2295 and 2322 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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