Crude palm oil futures on Bursa Malaysia Derivatives exchange ended sharply higher on Friday climbing to a near three-week high on short-covering ahead of the holiday weekend that was driven by upbeat US. data and prospects of lower output triggered by heavy rain fall in parts of Malaysia. The Malaysian Meteorological Department has issued warning of heavy rains that may cause floods over low-lying areas in key oil palm growing states of Pahang, Johor, Sabah and Sarawak, together. Energy prices held well on Friday, supported by fresh signs of a strengthening US economy and concern of potential supply disruptions in Iran and Iraq.

CPO futures are moving in expected lines. As mentioned in the previous update, while 2,970-75 Malaysian ringgit (MYR) a tonne holds, hopes of a retest of the recent highs look likely and a rise above 3,030 MYR/tonne being a trend line resistance could once again take prices higher back into the 3,100 MYR/tonne zone or even higher. Near-term resistances are seen at 3,185/3,200 MYR/tonne followed by 3,215/3,225 MYR/tonne levels. Indicators have turned bullish again with the MACD crossing above the zero line indicating a bullish reversal. Moves to 3,100 MYR/tonne followed by 3,065 MYR/tonne could support any major dips going forward for a test of recent highs above 3,350 MYR/tonne.

We believe the impulse that began from 1,427 MYR/tonne, which hit 4,486 MYR/tonne ended and a prolonged corrective move has possibly ended at 1,335 MYR/tonne. In the big picture, a new impulse began from 1,335 MYR/tonne and the third wave with a projected objective of 3,900 MYR/tonne has been met. A corrective wave “B” has met one potential target near 3,465 MYR/tonne. A wave “C” kind of a decline ended at 2,755 MYR/tonne itself. A possible new impulse has begun now with immediate targets in the 3,350-65 MYR/tonne range. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are above the zero line of the indicator indicating a bullish reversal. Only a cross-over below the zero line again could hint at resumption in bearish trend.

Therefore, look for palm oil futures to test the resistance levels.

Supports are at MYR 3,145, 3,100 and 3,065. Resistances are at MYR 3,185, 3,215 and 3,275.

(The author is the Director of Commtrendz Research and also in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of MCX. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at >gnanasekar_thiagarajan@yahoo.com .)

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