Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended sharply higher on Friday in more than three months, supported by better-than-expected exports and concerns over dry weather in key soya-producing areas in Argentina. Dry weather is starting to threaten soyabean yields in parts of Argentina's main crop belt, possibly hurting soyabean oil output and turning buyers to alternative palm oil. Malaysia's January palm oil exports that fell marginally from a month ago and showed a significant improvement from a double-digit decline earlier in the month. Malaysian palm exports in January fell 7 percent from a month ago, said cargo surveyor Intertek Testing Services, while another surveyor, Societe Generale de Surveillance, put the figure at 6.4 per cent.
CPO active April month futures moved perfectly in line with our expectations. As we have been maintaining over the past few months, that price structures are positive for a move to 2,600-15 Malaysian ringgit (MYR) a tonne going forward. Prices have come close to testing this levels and further extension to 2,645-50 MYR/tonne cannot be ruled out now. As mentioned in the previous update, a daily close above 2,485-90 MYR/tonne being a strong trend line resistance point could open the way higher now. Initial support will now be seen at 2,525-35 MYR/tonne followed by 2,485/90 MYR/tonne. The pace of this rally could slowdown in the 2,620-50 MYR/tonne zone and start declining lower from there towards 2,400 MYR/tonne levels from where it could consolidate in a broad range for a while. This is our favoured view. Unexpected rise above 2,650 MYR/tonne could see prices extending even higher as high as 2,745-50 MYR/tonne also, which we do not favour.
The extended correction to 2,200 MYR/tonne levels materialised in the form of an extended wave “C”. It looks like a possible wave “C” could have ended at 2,220 MYR/tonne now. For the present impulse move once above 2,650 MYR/tonne, potential exists for the impulse rally to extend to 2,755-2,800 MYR/tonne range too. Only an unexpected decline below 2,350 MYR/tonne could force us to abandon our bullish view. RSI 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 indicate a bearish trend.
Therefore, look for palm oil futures to test the resistances and then drop.
Supports are at MYR 2,520, 2,475 and 2,400. Resistances are at MYR 2,620, 2,650 and 2,700.
(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 )