Canada Markets

Short-Term Palm Oil Signals Appear Positive

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
Connect with Cliff:
Malaysian palm oil futures have posted gains over the last five trading sessions after breaking through resistance and gapping higher Tuesday. This is the December daily chart, which shows momentum moving into the over-bought region of the chart (second study) while the lower study shows futures spreads increasing their carry, a bearish sign of commercial selling. (DTN graphic by Scott R Kemper)

Palm oil prices have shown positive short-term signals after posting gains on Thursday for the fifth consecutive day on the benchmark December contract. Tuesday's trade included a breakaway gap higher, as prices moved above an area of chart consolidation and also through the resistance of both the 20- and 50-day moving averages.

The December contract rallied from a low of 2137 Ringgits/metric tonne (1 USD equals 3.28 Ringgits of Malaysian money) the week of July 30 to a high of 2483 Ringgits (US $757) on August 28, when a period of weakness saw a move lower to the 61.8% retracement of the upward rally. The reversal in direction came after a gradual move from lower to higher prices, often referred to as a rounding bottom or saucer pattern. This pattern can be seen in the daily price bars, as well as in the move in daily volume as seen in the third study. The recent move higher has been accompanied by increasing volume in recent days.

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]

Today's data releases were viewed as encouraging for palm oil prices in Malaysia, who is the world's second largest producer. First, inventories in September rose less than expected by economists. Stocks at the end of September were 1.78 million metric tonnes, which was below the 1.91 mmt expected and signifies higher than expected exports. Exports were announced at 1.61 mmt which were up 5.2% and higher than the estimated 1.55 mmt.

While this news has been received favorably by the market, which in turn provides support to competing oils such as soybean oil and canola, there remains room for concern. Overall, inventories jumped 7% from August and remain high. The increasing carry as seen in the lower study of the attached chart indicate commercial bearishness, despite the rising prices, which will be driven by speculative interests. This market remains consumed with fears of slowing trade within Asia due to slowing economies and weakening currency exchange experienced by trading partners. A lack of information surrounding the prospects for the U.S. soybean crop given the current shut-down will also act to keep traders on edge.

As seen on the attached chart, nearby resistance is at 2399 Ringgits (US$731.40). This is the upper limit of a gap lower in trade, seen Sept. 9. Movement above this level could see an eventual move towards the August high of 2483 Ringgits/mt. Support may be seen at the 2351 (US$716.77) level, which was prior resistance. Further indications from the commercial sector, as seen in the futures spreads, may be the clue to the future direction of this market.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

(ES)

P[] D[728x170] M[320x75] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]

Comments

To comment, please Log In or Join our Community .