Date:31/10/2004 URL: http://www.thehindubusinessline.com/2004/10/31/stories/2004103100570400.htm

Back Palm oil may head higher

Gnanasekar T.

MALAYSIAN crude palm oil futures on MDEX closed higher on Friday on expectations of better export performance in October. The two cargo surveyors are scheduled to issue export estimates for October on Monday. SGS, the market's leading cargo surveyor, estimated exports in September at 1.33 million tonnes (mt). It has so far estimated a volume of 1.02 mt for October 1-25.

A higher close in soya oil futures on the Chicago Board of Trade (CBOT) on Thursday and the bio-diesel incentive offered for soya oil by the US Government also boosted sentiment in the palm oil markets. CPO futures were also in bearish territory last couple of weeks due to fears of falling exports and rising stocks.

The third month active January contract turned higher as per our expectations. As mentioned in the last week's up date the weekly charts were showing signs of reversals and therefore, the bearish head and shoulder pattern was likely to fail. Another reason for our cautious bearish approach is the strong positive divergence noticed in CBOT soya oil futures which shows signs of pulling back higher. Initial resistance will be seen at 1453 Malaysian ringgits (MYR) a tonne, followed by important resistance at 1480 MYR/tonne.

The current move has the potential to reach 1519 MYR/tonne a Fibonacci retracement 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 now believe wave "A" is still in progress. As wave "A" is also an impulse the first wave of "A" ended at 1785 MYR/tonne followed by the second wave of "A" at 1950 MYR/tonne and the third wave of "A" ended at 1368 MYR/tonne.

The fourth wave of "A" then went higher to 1566 MYR/tonne and the fifth wave of "A" currently in progress targeting 1350-60 MYR/tonne levels. RSI, is now in the neutral zone indicating that it is neither overbought nor oversold. It is also showing a positive divergence. The averages in MACD, are on the verge of going above the zero line in the indicator which will trigger a bullish reversal.

MACD is also showing a positive divergence which is the main reason for our change in view. Current prices are lower than the short-term 8-day EMA at 1,418 MYR/tonne and the 34-day EMA is now at 1420 MYR/tonne. Look for prices to head higher. Supports at 1410, 1385 and 1365 MYR. Resistances at, 1453, 1480 and 1519 MYR.

(The author is associated with the Multi Commodity Exchange of India (MCX). 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.)