Date:07/08/2006 URL: http://www.thehindubusinessline.com/2006/08/07/stories/2006080700080700.htm

Back Palm oil seen testing support level

Gnanasekar. T

Malaysian crude palm oil futures ended lower on Friday on profit-taking. Supportive fundamentals are expected to underpin prices in the coming weeks. Higher exports, lower stocks, higher energy prices and the up coming festival demand are some of the factors underpinning prices going forward.

Markets will eagerly await the official MPOB figures next week for further clues. SGS, a cargo surveyor closely watched by the market, said this week exports of Malaysian palm products in July rose 11.8 per cent from a month earlier.

CPO active month futures moved in line with our expectations correcting lower. After a test of 1690 Malaysian ringgit (MYR) tonne levels a correction has begun. Near-term support is at 1595 MYR/tonne followed by important support at 1581 MYR/tonne being a fibonnaci retracement level as seen in the chart above.

As long as 1545-50 MYR/tonne holds any attempts of decline, we can expect a test of 1765 MYR/tonne in the coming weeks. Only a move below 1542 MYR/tonne can hint at a deeper correction lower. We will continue to stick with the same favoured wave counts.

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 a new impulse with the first wave of the impulse ending at 1,504 MYR/tonne and the second wave ending at 1329 MYR/tonne.

With the way prices have shot, it makes us believe that the third wave is in progress. RSI is showing a negative divergence, a sign of near-term bearishness. The averages in MACD are above the zero line in the indicator suggesting bullishness.

Prices are below the short-term 8-day period EMA at 1621 MYR/tonne indicating short-term bearishness and the 34-day period EMA is at 1555 MYR/tonne. Therefore, look for palm oil futures to test the support levels and rise higher again. Supports are at 1595, 1570 and 1542 ringgits. Resistances are at 1645, 1678 and 1752 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.)