Malaysian palm oil futures on BMD exchange ended lower on Friday due to the lingering worries over the Euro zone debt crisis. Markets have also been weakened by expectations of high stocks and concerns that demand will lose steam after India ends its festival season this month. Cargo surveyors Intertek Testing Services and Societe Generale are due to issue export data on Monday. Markets will be on the watch for monthly supply/demand data from USDA and MPOB which could further add to prevailing bearishness.

CPO futures are on the decline hinting at possible bearishness going forward. As mentioned in the previous update, fall below 2,850 Malaysian ringgit (MYR) a tonne could drag prices lower towards 2,765 MYR/tonne levels from where a good bounce higher can be expected. Prices did bounce higher from 2,755 MYR/tonne levels. However, the bounce has been unimpressive leading us to believe that there could be further downside towards 2,725-30 MYR/tonne levels from where the pullback higher can be stronger. Such a bounce could aim for 2,885 MYR/tonne initially or even higher towards 2,925 MYR/tonne. Rise above 2,820 MYR/tonne could hint that the pullback has begun.

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. 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. Fall below 2,960 MYR/tonne has confirmed that the downtrend has begun. RSI is in neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have below the zero line of the indicator again indicating a bearish reversal in trend.

Therefore, look for palm oil futures to test the support levels and then rise higher.

Supports are at MYR 2,750, 2,725 and 2,700. Resistances are at MYR 2,810, 2,885 and 2,930.

(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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