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Gnanasekar T.

Malaysian crude palm oil futures rose higher on Friday due to robust global demand for bio-fuel, expectations of a fall in inventory levels and also assisted by firm soya oil prices.

The global use of bio-fuels, made from sugar, cereals and vegetable oils is expanding rapidly as nations seek ways to reduce dependence on fossil fuels and cut greenhouse gas emissions. Though energy prices have softened recently, it is unlikely to have any major impact on CPO futures because of the tax sops provided by countries, which have made the use of renewable fuels mandatory.

CPO active February month contract rocketed higher with a gap triggering stops and hitting limit highs. As mentioned earlier, a crucial trend line resistance has been broken which signals the beginning of a long rally for a minimum target of the recent high at 2003 Malaysian ringgit (MYR) a tonne followed by another technical objective at 2600 MYR/tonne.

The gap at 1788 MYR/tonne could mostly be filled on the way down, as is the case whenever prices gap higher or lower. Rise above 1920 MYR/tonne will hint at a rally to 2003 MYR/tonne an immediate near-term resistance point.

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 are now in the powerful third wave impulse. RSI is in the heavily overbought zone indicating a correction to take place.

The averages in MACD are above the zero line in the indicator suggesting bullishness to be intact. Prices are above the short-term 8-day period EMA at 1824 MYR/tonne and the 34-day period EMA is at 1715 MYR/tonne. Therefore, look for palm oil futures to test the resistance levels and then correct lower.

Supports are at 1846, 1808 and 1785 ringgits. Resistances are at 1925,1949 and 2003 ringgits.

(The author is the director of Commtrendz Research and in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that 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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