Malaysian palm oil futures on Bursa Malaysia Derivatives Exchange ended sharply lower Friday due to several negative factors. Rumors about European lawmakers backing a proposal to limit the use of biofuels in the region's transport sector coupled with higher than expected soy stockpiles by the U.S. Department of Agriculture sparked selling pressure. During the week prices recovered following dovish remarks by U.S. Federal Reserve Chairman Ben Bernanke, but the rise could not be sustained, as concerns that palm oil stockpiles could rise again as CPO production picks up in the second half of 2013 weighed on sentiment. An uptick in production data from industry regulator the Malaysian Palm Oil Board (MPOB) signalled the start of a higher yield cycle. Stocks in Malaysia, the world's No.2 producer, fell to a more than two-year low of 1.61 million tonnes in June as demand outstripped supply.

CHART

CPO active month futures are moving in a range with mild positive bias. As mentioned earlier though prices could retrace to 2400 MYR/ton levels in the week, the trend still remains bearish and weakness persists on the bigger picture. As hinted in the previous update prices could find it difficult to sustain in the 2385-2400 MYR/ton levels and head lower again. As prices have gone below 2,300 MYR/ton, ideally it should start declining towards 2,200 MYR/ton or even lower to 2095 MYR/ton in the coming months. Any retracement could get capped in the 2325MYR/ton followed by 2357MYR/ton levels now. Only an unexpected rise above 2395 MYR/ton could cause doubts on our bearish view.

The wave counts still remains mixed and prefer for the time being to go with possibility of an end of wave “C” at 2220 MYR/ton now. A decline below 2,350 MYR/ton has dashed our bullish hopes. Ideally, prices could come down towards 2,095 MYR/ton or even lower in the bigger picture. With the way prices have been behaving, the preferred wave counts now could be an extended wave “A-B-C-D-E” and eventually a break below 2,200 MYR/ton opening the way for lower levels. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator hinting at bearish reversal. Only a crossover above the zero line again could indicate a reversal in trend.

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

Supports are at MYR, 2245, 2215, 2160 Resistances are at MYR 2325, 2357 & 2385.

(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.t@gmail.com .)

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