Palm oil may test support, rise

Monday, 7 January 2013 00:00 - - {{hitsCtrl.values.hits}}

Malaysian palm oil futures on the Bursa Malaysia Derivatives exchange ended higher on Friday as the US averted a fiscal crisis and traders look forward to better demand for the edible oil on a lower export tax structure.

Market participants are also betting on Malaysia’s zero export tax in January to spur demand and help clear record-high stocks which has dampened sentiment so far. Also, lower December production and disruption to supply due to heavy rain could help ease record-high stocks of 2.56 million tonnes. Industry regulator the Malaysian Palm Oil Board will release official data on December’s stocks and output next week which could provide further direction.

CPO active March month futures are moving perfectly in line with our expectations. As mentioned in the earlier update, March futures could find support in 2,435-40 Malaysian ringgit (MYR) a tonne zone and gradually start rising higher again. Prices have been unable to take out the resistance at 2,520 MYR/tonne so far. Further upside towards 2,620 MYR/tonne or even higher looks likely in the coming sessions. As we have been maintaining, the big picture price structures are still favourable for a push higher towards 2,600-25 MYR/tonne. Immediate resistance for March futures is at 2,525 MYR/tonne levels followed by 2,620 MYR/tonne. Stronger resistance will be noticed at 2,670 MYR/tonne subsequently. Supports will be seen at 2,430-35 MYR/tonne followed by 2,385 MYR/tonne. The extended correction to 2,200 MYR/tonne levels materialised in the form of an extended wave “C”. It looks like a possible wave “C” could have ended at 2,220 MYR/tonne now. Once above 2,625 MYR/tonne, potential exists for the impulse rally to extend to 2,755-2,800 MYR/tonne range. Only an unexpected decline below 2,300 MYR/tonne could force us to abandon our bullish view. RSI is in the neutral zone indicating that it is neither overbought nor oversold.

The averages in MACD have gone above the zero line of the indicator hinting at a bullish reversal. Only a crossover below the zero line again could indicate a bearish trend. Therefore, look for palm oil futures to test the supports and then rise.

Supports are at MYR 2,435, 2,420 and 2,375. Resistances are at MYR 2,525, 2,610 and 2,670.