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Uptrend seen in palm oil

Gnanasekar.T

Malaysia's palm oil futures ended the week in a very positive tone on a technical rally and confidence over duty draw backs by India. Weather is still playing a crucial part in China with expectations that the country would import more palm oil. The mark ets are very closely watching the weather developments there.

The market saw strong buying coupled with short covering on news that India will cut its crude palm oil tax. India's crude palm oil tax stands at 75 per cent. In India, most of country's major soybean areas have been sown after timely monsoons. However, more rains are needed to ensure the crops development. It is to be seen in the next couple of weeks how the weather behaves in the soyabean growing areas. Imports from India are expected to rise during the July-September period as it coincides with the f estival seasons and the domestic winter crop arrivals and accumulation of stocks.

Palm oil would continue to dominate edible oil imports in India despite a hike in their customs duties to 75 to 85 percent in February from 35 to 65 percent. Though soya oil prices saw a decline in CBOT, CPO prices were steady and showing a continuos up trend.

The benchmark futures contract September reached a high of 865 ringgits. As mentioned last week prices reached our target of 862 ringgits due to a flag pattern indicating bullishness. We are witnessing a clear up trend in progress with higher tops and bo ttoms being made. RSI, has reached the overbought zone. This indicates that a correction downwards is due. However, it could remain in the overbought zone for a while before the correction actually starts. In strong markets RSI remains in a overbought si tuation for quite a while before turning downwards.

MACD cross over did not take place last week and therefore the danger of prices going downwards remains less. MACD is comfortably above the zero line in the indicator denoting a positive momentum again. Even if prices correct downwards next week, and the MACD remains above zero level there is no cause to worry. The current prices are way above the average price of short term and medium term again maintaining the bullish trend upwards. Once, prices comes below the 9 and 25 period EMA bearishness would a gain creep into the market.

Therefore, look for prices to move steadily upwards with correction and profit taking at every rise toward the 899 ringgits target next week. Crucial resistance levels at 875, 888 & 899 and support levels are MYR 855, 840 and 835 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 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 t erm 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. )