Malaysian palm oil futures on Bursa Malaysia Derivatives ended higher on Friday on short-covering and bargain hunting after prices plunged to four-year lows on forecasts of higher oilseeds supplies. Ideal weather in the US Midwest could lead to a record harvest boosting supplies.

Crude palm oil futures reacted to weakness in the soya complex posting a 3.5 per cent drop this week amid a bumper harvest and soft export demand. Malaysian palm oil exports during July 1-25 fell 6.7 per cent from the same period a month ago, showing a mild recovery. In related markets, energy prices, too, fell on worries over weak economic activity in China and riding output in the US recoveries in crude palm oil could be short-lived going forward as the fundamental undercurrent remains extremely weak unless weather becomes erratic in the edible oil complex.Crude palm oil active month futures tanked lower as expected. As mentioned in the earlier update, weakness persists on the bigger picture and prices could find it difficult to sustain and head lower again. The 2,300 Malaysian ringgit (MYR) a tonne levels, could be a significant resistance in the coming sessions. Ideally, prices could once again start declining towards 2,095 MYR/t or even lower in the coming months. Oversold conditions warn of a pullback in the coming sessions, but the underlying trend hints at further weakness ahead. Any retracement could get capped in the 2220-45 MYR/t range initially and further resistance will be seen at 2285-2300 MYR/t levels.

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/t now. A decline below 2,350 MYR/t has dashed our bullish hopes. Ideally, prices could come down towards 2,095 MYR/t 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/t opening the way for lower levels. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are below the zero line of the indicator hinting at a bearish reversal. Only a crossover above the zero line again could hint at a bullish reversal.Therefore, look for palm oil futures to test the resistance levels and then decline again.

Supports are at MYR 2130, 2095, 2020. Resistances are at MYR 2220, 2250 and 2285.

(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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