Palm oil, used in everything from candy bars to biofuels, is poised to rally as much as 8 percent in the next four weeks, according to a technical analysis by Commtrendz Risk Management Services Pvt.
“The downside from current levels is limited and a bounce back is expected based on the Elliott Wave theory and Fibonacci retracement,” Gnanasekar Thiagarajan, a director at the Mumbai- based Commtrendz, said by phone. “The Wave A is likely to end at 2,920 ringgit level or lower, and subsequently a Wave B pullback is possible to 3,175 ringgit-3,200 ringgit levels.” A possible intermediate bottom has already formed at 2,925 ringgit ($920) a metric ton, he said.
Elliott Wave Theory, created by analyst Ralph Elliott in 1938, seeks to predict moves by dividing past trends into five sections, or waves. Fibonacci retracements use horizontal lines to indicate areas of support or resistance, created by drawing a trendline between two extreme points and then dividing the vertical distance by the key ratios of 38.2 percent, 50 percent, 61.8 percent and 100 percent.
“The 38.2 percent comes at 3,180 ringgit and 50 percent comes at 3,265 ringgit,” Thiagarajan said, citing a Fibonacci chart. A drop below 2,920 ringgit is a bearish sign, and prices may find support at 2,850-2,875 ringgit levels, he said.
The August-delivery contract declined 0.8 percent to 2,965 ringgit on the Malaysia Derivatives Exchange yesterday. Futures are down 18 percent since climbing to a 13-month high of 3,628 ringgit on April 10 because of concerns that a deepening European debt crisis would lower demand, and output in Malaysia, the second-largest producer, will increase.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
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