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Gnanasekar T.

Crude palm oil futures on the Malaysia Derivatives Exchange, or MDEX, closed lower on bearish January export estimates. However, the main reason for the week's fall in prices can be attributed to China's delay in issuing import quotas which was rumored to happen in the last week of January.

Import quotas are now expected to be released after the Lunar new year holidays. China has agreed to allow the import of 2.4 million tonnes of palm oil this year. A combination of the export data and weak technical charts added to the bearish atmosphere. Export estimates, were released on Thursday by cargo surveyors, SGS and Intertek.

Though the market expected negative data, reaction was less as prices had already fallen in anticipation of lower export estimates. Malaysia's January palm oil exports fell 17 per cent on month to 867,833 tonnes from 1.04 million tonnes in December, SGS estimated. The estimate was lower than the earlier one provided by Intertek testing services at 902,520 tonnes. As the export figures were falling down, so were the production figures and this continues to keep the markets subdued till a clear direction is available.

The active contract April broke out of the channel testing key support levels. Support at 1200 myr/tonne was not strong enough and as we expected last week a break of the key 1187 myr/tonne support lead to the test of another important support level at 1140 myr/tonne. The head and shoulder pattern noticed last week succeeded after breaking the neckline at 1196 myr/tonne targeting 1090 myr/tonne down in the near term. Though prices have the ability to test 1090 in the near term a more realistic support would be at 1105 myr/tonne which is also the 50 per cent retracement of the move from 941-1266 ringgits. A failure to hold at this level would further lead to a test of 1090 and 1065 myr/tonne on the downside. RSI is headed towards the oversold zone and due to this we could see a correction up wards in the weeks to come.

However, it could also linger in the oversold zone for a while before correcting up wards. MACD, is dangerously close to the zero line in the indicator which is a good indication for identifying a shift in the market trend. And as long as the averages in MACD stay above the zero line there is no cause to worry. Prices are below the short-term moving average of 9 and 50 day EMA.

Though the short-term looks choppy, weekly charts, which are considered medium term to long term in nature haven't shown any signs of bearishness yet. Therefore, look for prices to consolidate next week and move lower for a test of the support levels again.

Resistances at MYR 1167, 1187 & 1200 ringgits and supports at MYR 1140, 1105& 1090 ringgits. The RSI(Relative Strength Index) usually tops above 70 and bottoms below 30. Once RSI reaches 70 and above the commodity tends to become Overbought (and a correction is due) and when it reaches 30 and below it tends to become Oversold( and a rally up side is due). Divergences occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the RSI. Prices usually correct and move in the direction of the RSI. The MACD is the difference between a 26-day and 12-day exponential moving average.

A 9-day exponential moving average, called the ``signal'' (or ``trigger``) line is plotted on top of the MACD to show buy/sell opportunities. A crossover of two moving averages can be used to signal buy/sell opportunities as the short term average crosses over the longer term.

(The author is a Chennai-based technical analyst who tracks the international commodities futures markets. This analysis is based on historical price movement of the commodity concerned. There is risk of loss in trading.)

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