Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended sharply lower on Friday due to global economic jitters that could potentially hurt demand. Markets will be watching closely the official MPOB data that will be released next week for further clues. Demand seems to be steady as seen in the exports estimates by cargo surveyors. April exports jumped by 9.4 and 10.4 per cent from a month ago, according to Intertek Testing Services and Societe Generale de Surveillance, respectively. The recent price drop could further bolster buying underpinning exports going forward. Oil tumbled 2.5 per cent on Friday, with US crude below $100 a barrel for the first time since February, as an abrupt slow-down in US hiring soured economic sentiment.

CPO active month futures fell sharply in line with our expectations. As mentioned in the previous update, in the near-term failure to cross 3,520-25 Malaysian ringgit (MYR) a tonne could drag prices lower to 3,425 MYR/tonne or even lower to 3,385 MYR/tonne on the downside. The possible head-and-shoulder pattern identified in the previous update has materialised. Break below 3,440-45 MYR/tonne confirmed the pattern and this level could be a significant resistance to cross in the coming weeks. The current decline could potentially find a bottom near 3,265/75 MYR/tonne, a level anticipated in earlier updates. Ideally, prices are expected to bounce back from those levels and start heading northwards again. We are looking at the impulse that began from 1,427 MYR/tonne, which hit 4,486 MYR/tonne and a subsequent 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 ended at 2,755 MYR/tonne itself. A possible new impulse has begun which ended at 3,628 MYR/tonne. A corrective decline in the form of a “A-B-C” could possibly end near 3,265-75 levels. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator indicating a bullishness to be intact. Only a cross-over again below the zero line again could hint at resumption in the down trend.

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

Supports are at MYR 3,315, 3,295 and 3,265. Resistances are at MYR 3,400, 3,445 and 3,525.

(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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