The Hindu Business Line : Palm oil may test resistance, rise

MALAYSIAN crude palm oil futures ended sharply down after Malaysia dropped its seven-year peg to the dollar adopted after the Asian currency crisis and moved to a managed float following China's revaluation of yuan. However, the up coming festive demand in Asia could underpin prices and cushion the effect of a major fall in palm oil prices in the coming months. Demand so far has been weak.

Societe Generale de Surveillance, one of the two independent surveyors of Malaysian palm oil exports, said shipments for July 1 to 20 were estimated to have fallen 26 per cent from a month earlier. China one of the largest buyer of Malaysian palm oil, could potentially import more on account of the yuan revaluation and the Indian rupee has also appreciated in line with other Asian currencies, which could benefit the importers. European consumers too have emerged as large buyers of palm oil mainly for bio-diesel. Above all weather uncertainties in the US and the effect on the soya crop, is the crucial factor .

The third month active October contract moved lower after trading in a narrow range. Support will be noticed in the 1,353-1,361 Malaysian ringitt (MYR) a tonne levels and only a daily close below 1,345 MYR/tonne will trigger bearishness in CPO futures. We have still not abandoned our view of inverse head and shoulder pattern and would like to watch the near-term support levels closely.

Despite the sharp fall this week our favoured view is to expect a bounce up wards after testing the key support levels. 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. The correction ended at 1,252 MYR/tonne. We are possibly in a new impulse with the first wave of the impulse ending at 1,504 MYR/tonne and the second wave in progress.

A strong third wave is to begin anytime soon. RSI is in the oversold zone indicating a correction to take place. The averages in MACD are on the verge of going below the zero line in the indicator suggesting bearishness. Only a crossover of the averages below the zero line now will signal a clear bearish reversal. Prices are below the short-term 8-day period EMA at 1,407 and the 34 period EMA is at 1,412 MYR/tonne. Therefore, look for prices to test the support levels and then bounce higher.

Supports 1,361, 1,353 and 1,345 ringgits. Resistances at 1,395, 1,408 and1423 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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