The Hindu Business Line : Palm oil may head lower

MALAYSIAN crude palm oil futures on MDEX ended sharply lower on Friday due to soya oil's weakness and a not so friendly crop forecast from leading private forecaster Mr. Ivan Wong. A sell off in soya oil at the Chicago Board of Trade saw CPO futures slid lower after closing above the three week high and a psychological level above 1900 Malaysian ringgit (MYR) a tonne.

The market was closed on Monday and Tuesday to mark a Buddhist holiday, and the Prophet Muhammad's birthday. Mr Wong estimated palm oil production in April at 1.02 million tonnes. He put exports at 960,000 tonnes and closing stocks at 965,000 tones.

Markets will now focus on the export estimates of palm oil for the period May 1-10, of the two main cargo surveyors Intertek Testing Services and Societe Generale de Surveillance. Both ITS and SGS had put a final estimate of more than a million tonnes for April much above market expectations. They also estimated exports for April 1-10 at 333,968 and 347,908 tonnes respectively.

The Government run Malaysian Palm oil Board (MPOB) will release its official numbers on output, closing stocks and exports on Wednesday.

The third month active July contract moved as per our expectations. The correction extended to the falling trend line resistance point near 1905-1910 MYR/tonne levels and has failed to close above this level leaving scope for it move lower from here.

As we have been maintaining, we view this current up move as corrective one in nature. Only a close above 1935 MYR/tonne will negate our bearish outlook for the long term. The weekly charts, reveals the possibility of a bullish cycle getting over at 2003 MYR/tonne.

As per the channel in the chart, the rising trend line resistance point is at 2035 MYR/tonne. Prices came close to it but did not test this level as we have been expecting. The rising trend line support point for this channel is close to 1500 MYR/tonne. Using elliot wave analysis, we could be in the last leg of wave "A". This would be followed by an up ward correction in Wave "B". The move to 2003 MYR/tonne is the end of the fifth wave impulse and a move from there is a corrective wave "A" targeting 1750 MYR/tonne levels.

The move to 1900 MYR/tonne could be the fourth wave of Wave "A". RSI is now in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD, continues to be below the zero line in the indicator in spite of the pullback.

Current prices are higher than the short-term 8-day EMA at 1877 MYR/tonne and the 34-day EMA is now at 1883 MYR/tonne.

Look for prices to head lower. Supports, at 1865, 1850 and 1810 ringgits. Resistances, at 1885, 1900 and 1935 ringgits.

(The author is associated with the Multi Commodity Exchange of India (MCX). The views expressed in this column are his own and not that of his employer. This analysis is based on the historical price movements and there is risk of loss in trading.)

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