The Hindu Business Line : Downward correction in palm oil on

CRUDE palm oil futures on the Malaysian derivatives exchange or MDEX closed lower on Friday as players liquidated positions because of disappointing official crop data for August.

The Malaysian Palm Oil Board (MPOB) said the country's crude palm oil output had increased 10.5 per cent to 1.12 million tonnes in August, from 1.01 million tonnes in July and compared with 981,103 tonnes in August 2001.

MPOB said palm stocks till end August were up 15.8 per cent to 1.09 million tonnes, against 943,192 tonnes at end July and lower than 890,413 tonnes in the corresponding period last year.

In August, Malaysian palm oil exports stood at 891,752 tonnes up from 886,137 tonnes in July and 893,107 tonnes in August 2001.

Earlier last week, private forecaster Ivan Wong conveyed a similar message. He put August output at 1.08 million tonnes, up seven per cent from July. He forecast end-August stocks at 1.02 million tonnes, up from the official 942,121 tonnes at end-July. In the meanwhile, Hamburg-based newsletter Oil World has estimated the global soya oil production for the year 2002-03 at 30.7 million tonnes, up from last season's 29.2 million tonnes. It forecasts global consumption jumping to 31.1 million tonnes from 29.3 million tonnes.

The active contract fell sharply after showing signs of recovery in the initial stages of the week. Good volumes were also noticed a sign of overall market belief in the downward correction. As we have been maintaining, for some time, the bigger picture still continues to be bearish.

The trend line at 1425 Malaysian ringgit (MYR) a tonne was broken convincingly. Next crucial support lies at 1386 MYR/tonne.

The Fibonacci retracement of 38.2 per cent lies at 1392 MYR/tonne and will be a important level to watch. A break of that level could target the next retracement target of 50 per cent at 1335 MYR/tonne. A long term diagonal triangle pattern was also broken, confirming the rally in prices we saw for the last six months has come to a halt. The magnitude of the downward correction will, however, not be very strong and, therefore, a slide in prices from here looks daisy.

The elliot wave structures confirms the end of the 5th wave formation, which is the last leg of a wave cycle in the bigger picture. A correction downwards has started, which is the A-B-C correction downwards. RSI has reached the oversold zone indicating a minor up ward correction in the offing. RSI though has entered the oversold zone, has still not shown a positive divergence, which is very important to signal a change in trend up wards. The averages, in MACD have gone below the zero line in the indicator confirming the downtrend.

Prices are now below the short term average of 9 EMA and the 25 day EMA. Look for a minor correction up wards and then continue to head lower. Resistances at MYR 1408, 1418 and 1441 ringgits and supports at MYR 1386, 1368 and 1335 ringgits.

(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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