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Gnanasekar T.

Crude palm oil futures on the Malaysia Derivatives Exchange closed higher on Friday, on short covering ahead of the weekend. Bullish export and stock figures issued by a private forecaster on early Friday did not have much of an influence on the prices.

Private forecaster Palmis Management Bhd said Malaysia's March palm oil exports are likely to total 870,000 tonnes, up from 663,000 tonnes in February. End-March stocks are forecast at 1.16 million tonnes, down from 1.28 million tonnes at the end of February.

SGS (Malaysia) Bhd put Malaysian palm oil exports at 975,904 tonnes, up 33 per cent from 733,101 tonnes in February. In a separate report also issued on Monday, cargo surveyor Intertek Testing Services said Malaysia's March palm oil exports totalled 951,300 tonnes, up 43 per cent from 663,270 tonnes in February. In spite of good export figures, absence of overseas market demand could not further lend support to the market. China has finally started allocating tariff-rate import quotas for edible oil, or at least, for palm oil. But no one knows how much has actually been allocated and how much of it will eventually translate into imports. On the physical side no Chinese buying was noted, so the rumour has failed to boost the market which has been range bound for a week.

The third month active contract June is still trading in the channel as seen in the chart. Prices have made a mild recovery and trying to push ahead. Though there is a chance of a test of the 1,180 myr/tonne level in the short term, which is also a trend line resistance level, extreme caution has to be exercised in taking a bullish view of the market as the bigger picture is still in a corrective phase. As mentioned last week a potential head and shoulder pattern is also in the making, which is a very bearish sign and could lead to a steep fall in prices. This pattern can be confirmed on a successful break of 1,110 myr/tonne on the downside, which also coincides with a horizontal trend line support at the same level.

Using Elliot wave analysis on the continuation chart reveals an A-B-C correction in the making, which happens after a completion of five waves. RSI is still in the neutral zone indicating it is neither overbought nor oversold. MACD continues to lie below the zero line in the indicator, which signifies that downtrend in prices are intact.

A reversal in prices up wards can be confirmed only after the averages in MACD go above the zero line in the indicator. Prices are once again close to testing the moving averages of 9 and 50 day EMA. Therefore, look for prices to consolidate and head lower with a chance of a minor rally up wards before that. Resistances at MYR 1167, 1173 & 1195 ringgits and supports at MYR 1145, 1137 & 1120 ringgits.

The RSI(Relative Strength Index) usually tops above 70 and bottoms below 30. Once RSI reaches 70 and above the commodity tends to become Overbought (and a correction is due) and when it reaches 30 and below it tends to become Oversold( and a rally up side is due). Divergences occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the RSI. Prices usually correct and move in the direction of the RSI. The MACD is the difference between a 26-day and 12-day exponential moving average.

A 9-day exponential moving average, called the "signal" (or "trigger") line is plotted on top of the MACD to show buy/sell opportunities. A crossover of two moving averages can be used to signal buy/sell opportunities as the short-term average crosses over the longer term.

(The author is a Chennai-based technical analyst who tracks the international commodities futures markets. This analysis is based on historical price movement of the commodity concerned. There is risk of loss in trading.)

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