• PAGE ONE
• INDEX
• HOME

Palm oil futures trend may be reversed

T. Gnanasekar

MALAYSIA'S palm oil futures was steady last week and have bounced off from recent lows, in anticipation of good news during a visit by the Indian Prime Minister, Mr Atal Bihari Vajpayee, later this month to Malaysia.

CBOT futures, which the palm oil markets tracks closely, has also risen from its nearby lows and general technical covering has added to a strong upward correction last week.

The Indian Government is in no mood, to consider rationalising edible oil duties between palm oil and soya. However, there is widespread expectation of a counter-trade deal with Malaysia on a $1.8 billion railway project. The benchmark third-month July futures has bounced sharply after hitting support at 740 on this news. Malaysia reiterated on Wednesday the ringget peg of 3.8 units to a dollar would remain, but said the Government was monitoring regional currencies to ensure export competitiveness. Th e Malaysian Government may be forced to devalue the ringgit to make palm oil more competitive in the international market, especially as the Indonesian rupiah remains weak.

The benchmark July futures should be able to test 800 ringgit before being able to move upward. The move up last week was, due to an oversold condition in the market which led to short-covering. The indicators RSI and MACD are showing signs of a reversal . However, a break of MYR 825 only would confirm a reversal in trend. RSI is slowly cruising towards the overbought though it has scope to remain overbought for a while. MACD is on the verge of crossing over, which leads us to believe a test of 825 ringg it in the coming week should not be very difficult. The short-term average of 9 EMA has crossed over recently signalling a short-term reversal upwards. However, it is to be seen if the long-term average of 50 EMA can also be broken. If it does, this migh t trigger a reversal upwards in the medium-term also. Crucial resistance levels are MYR 825 & 848. Support levels are MYR 788 & 740.

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 si de 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 exponentia l 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)