The Hindu Business Line : Palm oil may test support level

MALAYSIAN crude palm oil futures on BMD ended mostly unchanged in a subdued trade ahead of the year-end holidays and closure of CBOT for Christmas also dampened activity.

Markets are expected to move in a sideways range in the coming week on lack of activity and market moving news. CPO futures lagged behind in following CBOT soya oil prices on its way up this week showing clear signs of inherent fundamental weakness. Markets were also focused on position squaring ahead of year-end.

A bearish supply and demand report for December from private forecaster Mr Ivan Wong was seen as an important factor for the bearishness. He estimated Malaysia's palm oil output in December at 1.2 million tonnes compared to 1.26 million tonnes in November. But he forecast stocks to rise to 1.525 million tonnes at the end of December from 1.41 million tonnes in November.

Exports this month has been a dampener as seen in the data released till now by the cargo surveyors. Societe Generale de Surveillance (SGS) the main cargo surveyor put export of Malaysian oil palm products for Dec 1-20 to 618,444 tonnes, down 18.4 per cent from estimates for November 1-20.

The third month active March contract is struggling to cross the 1400 Malaysian ringgit (MYR) a tonne crucial support level decisively.

Prices are holding support at 1385 MYR/tonne currently. A daily close below this level should see a test of 1353 MYR/tonne in the near-term and failure to hold support there could even take it lower towards 1328 MYR/tonne.

Failure to surpass the important resistance at 1480 MYR/tonne has forced us to abandon our short-term bullish outlook. The weekly charts still continue to show signs of reversals though there is downward pressure in the short-term. Therefore, we believe there is potential for CPO futures to head higher after this down move is completed.

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 "B" ended at 1478 MYR/tonne. As wave "A" is an impulse the first wave of "A" ended at 1785 MYR/tonne followed by the second wave of "A" at 1950 MYR/tonne and the third wave of "A" ended at 1368 MYR/tonne.

The fourth wave of "A" then went higher to 1566 MYR/tonne and the fifth wave of "A" got over at 1353 MYR/tonne levels. Wave "B" then begun from there and tested 1478 MYR/tonne. We could now be in wave "C" targeting lower levels. RSI is in the neutral zone indicating that it is neither overbought nor oversold. It is also showing a positive divergence. The averages in MACD, have gone below the zero line in the indicator suggesting bearishness. Current prices are lower than the short-term 8-day EMA at 1394 MYR/tonne and the 34-day EMA is now at 1412 MYR/tonne. Look for prices to test the support levels. Supports at MYR 1,378, 1,353 and 1,328. Resistances at MYR 1,395, 1,412 and 1,424.

(The author is associated with The Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not necessarily of MCX. This analysis is based on historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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