The Hindu Business Line : Palm oil likely to head lower

MALAYSIAN crude palm oil futures on MDEX closed higher on speculative buying after prices failed to drop below the near-term support levels. Overall a weaker US soya oil market and rising palm oil stocks continues to pressure the markets. Palm oil futures recovered after strong export numbers for September, coupled with news that the Malaysian Government had raised the quantum of crude palm oil that could be exported duty-free in 2004.

SGS said, it estimated 1.33 million tonnes of exports in September against August's 1.19 million tonnes, an increase of 11 per cent. It also said Indian demand dwindled to 92,795 tonnes this month from 107,950 tonnes in August, but this was offset by shipments to Pakistan, which expanded to 122,180 tonnes from 84,474 tonnes. Prospects of lower vegetable oil demand in the coming months and higher end-September stocks are seen pressuring palm oil futures.

The third month December active contract has found support at 1387 Malaysian ringgit (MYR) a tonne twice in the previous week. Long-term support point at 1399 MYR/tonne has also held well so far, which happens to be the long-term rising trend line point as seen in the chart above. We can now expect a pullback towards 1445-1457 MYR/tonne levels.

However, the current price structures do not favour an up move and a daily close below 1380 MYR/tonne will lead to a sharp fall. Our view currently remains neutral now and only if 1395-1400 MYR/tonne levels hold and close above 1465 MYR/tonne we will get bullish on the market again. One wave target near the 1365 MYR/tonne has already been met.

The move to 2003 MYR/tonne is the end of the fifth wave impulse and a move lower from there is a corrective A-B-C pattern in the making. We now believe wave "A" got over at 1368 MYR/tonne followed by wave "B" which hit 1566 MYR/tonne. A wave "C" has possibly begun from there. This will be confirmed on the break of 1368 MYR/tonne.

RSI is now in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line in the indicator suggesting bearishness, which is one of the main reasons for abandoning our bullish view. Current prices are higher than the short-term 8-day EMA at 1421 MYR/tonne and the 34-day EMA is now at 1449 MYR/tonne. Look for prices to test resistance levels and then head lower. Supports at, 1410, 1399 and 1380 ringgits. Resistances at 1445, 1457 and 1465 ringgits.

(The author is associated with the Multi Commodity Exchange of India (MCX). The views expressed in this column are his own and not 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.)

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Palm oil likely to head lower

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