The Hindu Business Line : Palm oil may head lower

The leading forecaster of palm oil supply and demand, Mr Ivan Wong, on Friday projected a closing stock of 1.33-1.34 million tonnes for June as exports slow and production enters a seasonal peak. The estimates are higher than official numbers released by the Malaysian Palm Oil Board for June over the last three years.

Markets will closely watch official production, exports and closing stocks numbers for May due from the Malaysian Palm Oil Board on Monday. Societe Generale de Surveillance, the leading cargo surveyor for Malaysian palm oil, said on Friday it had estimated exports for June 1-10 at 268,230 tonnes against 334,522 tonnes in the same period in May and 373,695 tonnes a year ago.

The fundamental picture looks more bleak from here as palm oil output is expected to increase with no corresponding growth in exports as the major buyers India and China have ample stocks and the latter having credit squeezes resulting in a build up of stocks.

The third month active August contract is struggling to show any signs of a pullback with all rallies being sold and the structures increasingly pointing towards a sharp fall from here. Currently the long-term trend line at 1475 Malaysian ringgit (MYR) a tonne and the 200-week average at 1460 MYR/tonne seems to providing some cushion.

A daily close below the above mentioned levels will set the tone for the test of 1350 MYR/tonne an important Fibonacci retracement point followed by another important target at 1230 MYR/tonne.

We have been adopting a bearish outlook as the weekly charts turned bearish at 1930 MYR/tonne levels based on divergences in indicators, moving average cross-over and elliot wave structures. We might need to review our elliot wave counts after the sharp fall last week.

The move to 2003 MYR/tonne is the end of the fifth wave impulse and a move from there is a corrective A-B-C pattern in the making. We could still be in an extended wave "A" looking to target 1350 MYR/tonne.

However, RSI is heavily oversold and possibility of a good upward correction is still there. There is no divergence seen which leads us to believe that this bearish trend is not completely over.

The averages in MACD, continues to be below the zero line in the indicator suggesting bearishness. Current prices are lower than the short-term 8-day EMA at 1533 MYR/tonne and the 34-day EMA is now at 1656 MYR/tonne.

Look for prices to consolidate and head lower. Supports, at 1475, 1460 and 1410 ringgits. Resistances, at 1500, 1525 and 1550 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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