The Hindu Business Line : Palm oil likely to be range-bound

CRUDE palm oil futures on the Malaysia Derivatives Exchange, or MDEX, closed lower on Friday with the market stuck in a narrow range and thin trading ahead of the weekend. Falling stock levels in Malaysia and better-than-expected exports in April will continue to support prices above the 1,200 Malaysian ringgit (MYR) a tonne level, but there was no fresh consumer demand to take the market further up.

Malaysia's April palm oil exports fell 3 per cent on month to 947,791 tonnes from 975,904 tonnes in March, cargo surveyor SGS (Malaysia) Bhd said on Tuesday. The estimate was above market expectations of around 900,000 tonnes for April. Also Tuesday, another surveyor, Intertek Testing Services, estimated April exports at 924,901 tonnes. Palmis has already forecast a fall in April palm oil stocks to 1.07 million tonnes from 1.17 million tonnes at the end of March.

Moreover, with daily rains in the week, it is to be seen if it has affected harvesting in April. CBOT continued its decline breaking crucial support levels. Market is likely to remain range-bound ahead of a series of data releases in the next 10 days which include, forecasts from private forecaster Palmis, May 1-10 export estimates from cargo surveyors Intertek Testing Services and SGS (Malaysia) Bhd and official April crop estimates from the Malaysian Palm Oil Board.

The active contract July is stuck in a narrow range with thin volumes, which basically signifies a directionless market. Prices broke the important trend line support at 1,208 MYR/tonne and for brief period even tested the psychological level of 1,200 MYR/tonne. Long-term active contract chart, reveals very strong resistance at 1238 MYR/tonne and to sustain this bullish run, prices need to cross this level. We still believe this a correction phase in the bigger picture. The Elliot picture would change if prices broke the important resistance at 1245 MYR/tonne. RSI is back in the neutral zone after entering overbought zone last week coupled with a negative divergence, where prices were making a high which is not confirmed by a high in the RSI. This lead to a strong correction downwards. The long-term average in the MACD indicator seems to have crossed over the short term indicating possible bearishness in the offing. MACD averages, however, are still above the zero line in the indicator and as long as it remains above the zero line the trend will remain intact.

Prices are on the verge of crossing over the short term moving averages of 9day EMA and 50 day EMA lies at 1,184 MYR/tonne. Therefore, look for prices to remain range-bound with possibilities of a test of crucial support levels below 1200 MYR/tonne. Resistances at MYR 1,222, 1,238 and 1,245 ringgits and supports at MYR 1,202, 1,195 and 1,184 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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