The Hindu Business Line : Palm oil futures may head higher

MALAYSIAN crude palm oil futures on MDEX closed higher on Friday mostly on short covering ahead of the export figures from the cargo surveyors SGS and ITS to be released next week.

Prospects of better exports in May 1-10 saw CPO futures recovering some ground. Private forecaster, Mr Wong said Malaysia's palm oil output in April was estimated at 1.09 million tonnes, up 10 per cent from March. He put end-April stocks at 1.05 million tonnes, compared with the official figure of 1.01 million tonnes at end-March.

Exports in April were estimated at 945,000 tonnes, compared with the official figure of 961,570 tonnes for March. Rumours that India has cut the soya oil base price it fixes to calculate import tariffs to $530 a tonne from $600 sparked some activity in the CBOT exchange. India sets base prices to check revenue loss from under-invoicing by some importers.

The active contract moved on expected lines testing our resistance levels and successfully closing above it. The Long-term trend line at 1381 Malaysian ringgit (MYR) a tonne has been broken at last leaving scope for a test of higher levels to 1470 MYR/tonne a confluence point.

A sloping trendline resistance comes there followed by the fibonacci 38.2 per cent retracement, of the move from 1695 to 1325 MYR/tonne at the same level and thus termed as a confluence point. The earlier trendline resistance point at 1381 MYR/tonne will now support any move lower.

As expected the wave counts have confirmed a completion of wave "A" at 1325 MYR/tonne. Now wave "B" has begun targeting the 1468 MYR/tonne the 38.2 per cent fibonacci retracement target.

In typical wave characteristic, wave "B" would retrace at least 38.2 per cent of wave "A" as seen in the chart above. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The average in MACD though, continues to be below the zero line in the indicator.

A clear change in trend will be noticed after the averages in MACD go above the zero line in the indicator. Current prices are above the short term 9 day EMA at 1377 MYR/tonne and the 25day EMA is now at 1390 MYR/tonne. Look for prices to head higher.

Resistance at 1415, 1450 & 1470 ringgits. Supports at 1400, 1380 & 1326 ringgits.

(The author is a trader with Scotiabank and the views expressed by him are his own and not necessarily that of his employer. This analysis is based on historical price movements and there is risk of loss on trading.)

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Palm oil futures may head higher