The Hindu Business Line : Palm oil may test resistance level

MALAYSIAN crude palm oil futures on BMD ended sharply higher on Friday helped by a vibrant physical market despite initially showing signs of surrendering gains made over the past week.

Exports data from the cargo surveyors were seen as neutral. Societe Generale de Surveillance, a leading surveyor of Malaysian palm oil cargoes, had estimated exports for February 1-25 at 8,53,759 tonnes, up by just 2 per cent from a month earlier. CPO futures have been closely tracking the rival soya for direction.

Soya oil futures on the Chicago Board of Trade closed sharply higher on Friday on fears about crop losses in South American soya-growing areas, especially Brazil, due to the recent drought there and this is expected to have a positive effect on CPO futures next week. This coupled with expectations of lower palm oil output as per the MPOB's earlier estimates will continue to underpin prices.

The third month active May contract rallied higher in line with our expectations. Important resistance at 1,380 Malaysian ringgit (MYR) a tonne being the falling trend line resistance point has been tested. As mentioned earlier, daily close above 1,321 MYR/tonne has the potential to take CPO futures to 1,353 MYR/tonne initially or even higher towards 1,389 MYR/tonne - the falling trend line resistance point as seen in the chart above.

Any corrective declines to 1,350 MYR/tonne, is expected to hold the downside for the short-term. Potential upside targets are 1,421 MYR/tonne and 1,455 MYR/tonne. The weekly charts have been showing signs of reversals, as the positive divergence look strong. The move to 2,003 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.

Wave "A" ended at 1,368 MYR/tonne followed by a flat Wave "B" which then hit 1566 MYR/tonne. Wave "C" then possibly ended at 1,252 MYR/tonne. We could have begun a new impulse and the next week's price action could throw more light.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone above the zero line in the indicator suggesting a bullish reversal. Current prices are higher than the short-term 8-day EMA at 1,344 MYR/tonne and the 34-day EMA is now at 1,330 MYR/tonne.

Look for prices to test the resistance levels. Supports at 1,362, 1,354 and 1,337 ringgits. Resistances at 1,395, 1,421 and 1455 ringgits.

(The author is associated with the Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not necessarily that of his employer. 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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