The Hindu Business Line : Downward tweak likely in palm oil

Malaysian crude palm oil futures ended lower on Friday after hitting a new high as market participants booked profits ahead of a weekend. Tight supplies and good demand continue to underpin prices despite a sharp rise in CPO futures.

Palm oil gained more than 28 per cent this year on dwindling supplies at home and robust demand from top importers India and China. It surged 40 per cent last year mainly on the back of bio-diesel demand. Exports of Malaysian palm oil products in May rose 4.7 per cent to 1,184,606 tonnes from 1,131,100 in April as per data from SGS.

CPO active August contract continues to rise higher. After a minor correction during the early part of the week prices once again rose sharply higher making new highs. We have been cautioning about indicators lying in extremely overbought territories and a correction in the offing. However, the rally has not shown any signs of exhaustion. Though we expected the possibility of a test 2600 Malaysian ringgit (MYR) tonne, we are quite surprised the way it has reached.

Typically, the ensuing fall could be equally strong on the downside. Scope for a sharp rise from present levels looks unlikely, and expect a corrective decline to begin soon. Initial support will be at 2450 MYR/tonne followed by more important support at 2275 MYR/tonne.

A new impulse began from 1427 MYR/tonne as per the recent wave counts. We are in the fifth wave move of that impulse. We can expect a corrective A-B-C to take place in the coming weeks. RSI is in the overbought zone and has started showing negative divergences indicating a possible top in the offing. The averages in MACD are still above the zero line in the indicator suggesting bullishness to be intact. Therefore, look for palm oil futures to correct lower.

Supports are at MYR 2510, 2450 and 2378. Resistances are at MYR 2610, 2655 and 2685.

(The author is the Director of Commtrendz Research and also 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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