Malaysian palm oil futures on Bursa Malaysia Derivatives Exchange ended higher on Friday on expectations output will fall in August. This raised hopes that stocks in Malaysia could further tighten. Production had surged 18.2 per cent in July, pushing stocks higher. It was expected to continue climbing due to the higher yield cycles around this time of the year. The Malaysian Palm Oil Board will issue official data on August stocks, output and exports on September 10. However, Malaysian palm could face pressure going forward after top producer Indonesia said it would cut its crude palm oil export tax to 9 per cent for September from 10.5 per cent in August. Sentiment also got a boost from a weakening ringgit after poor Malaysian economic data weakened the ringgit and a surprise surge in China's manufacturing sector fuelled demand hopes from the world's No. 2 palm oil buyer.

Crude palm oil active month futures are moving perfectly in line with our expectations. As mentioned in the previous update, an unexpected rise above 2,361 Malaysian ringgit a tonne (MYR/t) could hint at a rise towards 2,415-20 MYR/t levels now, being a falling trend line resistance point. The technical picture has turned friendly and this could potentially open up the upside again towards 2,400-2,420 MYR/t levels, which happens to be the possible target for the present up move.

Prices could ease from there towards 2,345 MYR/t levels or even lower to 2,305 MYR/t levels. Currently, supports at 2,345 MYR/t could hold dips for a push higher towards resistances mentioned above.

Looking at the bigger picture, there is a good chance that this move could potentially turn into a strong one, targeting 2,500 MYR/t levels too if it takes out 2,425 MYR/t easily. Only an unexpected fall below 2,300 MYR/t could give bearish hopes again, which we do not favour presently.

The wave counts need to be reviewed once again. Fine-tuning of counts is necessary to get the bigger picture forecasts clear. The present decline has met an intermediate wave target at 2,135 MYR/t and the subsequent impulse characteristics of the present move make us believe it could exhaust near 2,410-20 MYR/t levels and then a subsequent decline to 2,310 MYR/t levels. Further to this decline, a sharp third wave move looks likely for 2,575 MYR/t in the coming months.

Relative Strength Index 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 hint at bearishness again.

Therefore, look for palm oil futures to test the resistances and correct lower again.

Supports are at MYR 2,345, 2,310 and 2,280. Resistances are at MYR 2,385, 2,415 and 2,435.

(The author is the Director of Commtrendz Research and is also on 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. The author can be reached at >gnanasekar.t@gmail.com .)

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