Malaysian crude palm oil (CPO) futures on Bursa Malaysia Derivatives exchange ended near one-month low on Friday amid a broad-based sell-off in commodities on risk aversion. Fears that the US economy could slip back to recession and the recent problems in Euro zone have forced investors to seek cover, pulling out of commodities. Fall in prices were despite exports of Malaysian palm oil products for July jumping 13.5 per cent to 16,28,688 tonnes, cargo surveyor Societe Generale de Surveillance.

CPO futures are moving perfectly in line with our expectations. Failure to follow-through higher above 3,145-60 Malaysian ringgt (MYR) a tonne levels, has lead to a sell-off. As mentioned in the previous update, while 3,155-65 MYR/tonne gets capped, a decline below recent low of 3,015 MYR/tonne could materialise opening the way for 2,925-50 MYR/tonne or even lower. However, the decline could be gradual and will see rallies to 3,100-10 MYR/tonne capping the upside attempts in the coming sessions. Only an unexpected rise and close above 3,135 MYR/tonne could force us to abandon our bearish view. Favoured view still expects a decline to 2,925-50 MYR/tonne levels while 3,145-55 MYR/tonne remains undisturbed. 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. Unlike in the previous update, we counted the fall towards 3,133 MYR/tonne as an end of wave “A” now and not the wave “C” as anticipated earlier. A corrective wave “B” has met one potential target near 3,465 MYR/tonne. A wave “C” kind of a decline looks likely with potential to test even 2,600 MYR/tonne in the bigger picture. RSI is in neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator again indicating bearishness to be intact.

Therefore, look for palm oil futures to test the resistance level initially and then fall lower.

Supports are at MYR 3,015, 2,950 and 2,920. Resistances are at MYR 3,085, 3,110 and 3,150.

(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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