TECHNICAL ANALYSIS. Palm oil futures rise on improving demand

Malaysian palm oil futures on BMD were higher on Monday, helped by improving export demand and strong commodity prices due to tight supplies. Stronger Malaysian exports for the first half of January, pointing to good demand, also supported palm. Shipments rose 6.7 percent in the Jan. 1-15 period from the first two weeks in December, data from cargo surveyor Intertek Testing Services showed on Monday. Data from another cargo surveyor, Societe Generale de Surveillance, showed that shipments rose 12 percent during the same time period. Malaysia, the world's second-largest palm oil producer after Indonesia, will raise its crude palm export tax to 7.5 percent in February, up from 7 percent in January, according to a circular on the Malaysian Palm Oil Board website on Monday.

CPO active month April futures edged lower, but recovered strongly. As mentioned earlier, in the medium-term picture, there is scope for this uptrend to turn into a very strong one even targeting 3,200 MYR/ton levels, a potential medium-term target area. No change in view. After hitting 3200 MYR/ton levels, prices have been in a sideways move for a while now. As mentioned in the previous update, prices could edge lower now in a correction and such corrections are healthy for the uptrend to sustain by squeezing out weak longs. The present sideways move has been accompanied by good volumes at the lower end of the range, suggesting a strong up move once it breaks out of the consolidation in the 3000-3200 MYR/ton zone. Potential target are around 3,350-3,450 MYR/ton levels in the near-term. Only an unexpected decline below 3005 MYR/ton could lead to a stronger correction. Such a fall could see stronger supports around 2960-75 MYR/ton levels being an important trend line support level. As explained before, a one sided move without price corrections could be vulnerable for a sharp decline subsequently. But, the way prices have paused and volumes rising at the lower end of the range, favoured view expects prices to break higher above 3,200 MYR/ton in the coming sessions and aim for targets mentioned above.

We will now reassess the wave counts, as prices have crossed over above 2370-2400 MYR/ton. A possible new impulse looks to have started again. One of our targets at 1850 MYR/ton was met. The rally from there looks very impressive. As mentioned earlier, we expected prices to push higher towards 2645 MYR/ton initially and then correct lower in a corrective pattern towards 2460 MYR/ton or even lower to 2225 MYR/ton, and then subsequently rise towards a medium to long-term target at 3600 MYR/ton, which could bring this current impulse to an end. The medium to long-term expectation, that we have been having is slowly materializing and the impulse wave is underway. We have maintained for several weeks now that any dips could prove to be opportunity to participate in the upcoming uptrend. However, the picture could turn weak if prices unexpectedly went below 2,800 MYR/ton levels now. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. Divergences in indicators warn of a sharp corrective decline lower in the coming sessions. The averages in MACD are still above the zero line of the indicator hinting at a bullish reversal in trend. Only a crossover again below the zero line could hint at weakness again.

Therefore, look for palm oil futures to test supports and rise higher subsequently.

Supports are at MYR, 3060, 3025 & 2970 Resistances are at MYR 3150, 3180 & 3250.

Gnanasekaar .T ( The author is the Director of Commtrendz Research and there is risk of loss in trading. He can be reached at gnanasekar.t@gmail.com .)

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