Malaysian palm oil futures on the Bursa Malaysia Derivatives Exchange edged up on Friday on bargain-hunting, after prices fell to the lowest in more than three weeks, although fears remained that stocks would surge in the coming months. Despite a positive US Department of Agriculture report, which projected a smaller US soya crop this autumn and tighter-than-expected stockpiles a year from now, prices failed to rally. This could further dent sentiment for crude palm oil futures.

The soyabean crop has been hit harder than the corn crop by the recent adverse weather in the US farm belt. Malaysian palm oil stocks at the end of August stood at 1.67 million tonnes, almost flat from the 1.66 million tonnes at the end of July, as healthy consumption for festivals offset an increase in output. Markets, however, turned bearish after leading industry analyst Dorab Mistry said Indonesia and Malaysia would seasonally produce more palm oil, at least until April 2014.

Crude palm oil active month futures moved against our expectations. As mentioned in the previous update, an unexpected fall below 2,345 Malaysian ringgit a tonne (MYR/t) could dent bullish expectations. This could potentially revive bearish hopes again. Big picture charts have once more turned neutral. A fall below 2,290-95 MYR/t increases further the chances of a decline to recent lows. However, there could be pullbacks that could find resistances at 2,365 MYR/t, followed by 2,395-2,400 MYR/t levels now. Only a push above 2,465 MYR/t can revive bullish hopes for a move above 2,500 MYR/t, which is still our favoured level, if not for CBOT soya oil futures, which look quite weak now.

The wave counts need to reviewed again. For the time being we will stick to the current wave counts. Only a close below 2,270 MYR/t can force a review. 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 2,500 MYR/t levels and then a subsequent decline to 2,345-50 MYR/t levels. It looks like the anticipated decline materialised. Further to this decline, a sharp third wave move looks likely for 2,575-2,600 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 are still above the zero line of the indicator, hinting at a bullish trend. Only a crossover below the zero line again could hint at bearishness again.

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

Supports are at MYR 2,300, 2,270 and 2,175. Resistances are at MYR 2,365, 2,395 and 2450.

(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 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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