The Hindu Business Line : Palm oil may slip further

MALAYSIAN crude palm oil futures ended higher on Friday on weekend short-covering, after being in the red throughout the week. The front-month contract broke the long-defended support of 1400 ringgit this week after a sell-off in CBOT soya oil futures.

Physical stocks continue to pile up and poor off take is also adding further supply pressure. The bleak outlook was further backed by data from Societe Generale de Surveillance(SGS estimating November exports to have fallen 17 per cent from October.

The third month active front month contract corrected lower as expected. As mentioned earlier, a move below 1,393 Malaysian ringgit (MYR) tonne has now weakened our overall bullish view. Crucial support now lies at the long-term trend line support point at 1,374-78 MYR/tonne.

And as long as this level holds, CPO futures are still expected to rise higher in the coming months. Strong resistance will now be seen 1,415-23 MYR/tonne 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 ending at 1,329 MYR/tonne. The third wave seems to have begun looking to target the 1,600 MYR/tonne levels ultimately. Unexpected break below 1,355 MYR/tonne will force us to abandon this count.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. It is also showing a positive divergence, where the price makes a lower low not confirmed by a lower low in the indicator.

The averages in MACD are below the zero line in the indicator suggesting bearishness. Prices are below the short-term 8-day period EMA at 1,401 MYR/tonne and the 34-day period EMA is at 1,417 MYR/tonne. Therefore, look for palm oil futures to test the resistance levels and correct lower subsequently. Supports are at MYR 1378, 1354 and 1327. Resistances at MYR 1416, 1435 and 1458.

(The author is associated with the Multi Commodity Exchange of India Ltd. 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. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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