Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended higher on short-covering and bargain-hunting, while the market was also trying to digest news of a delay in the proposal to cut export taxes. Prices posted a weekly drop of more than 5 per cent, their third straight weekly decline. Palm oil had shed more than 11 per cent on concerns of rising stocks in the first two days of the week, tumbling to a near 3-year low of 2,230 ringgit a tonne on Wednesday, before paring losses later in the week. Pressure on stocks could ease in the fourth quarter providing some relief for markets. External markets have also been going against CPO futures, as soyabean oil too collapsed due to harvest pressure and energy futures have been super volatile.
CPO active month futures tanked sharply lower and then recovered mildly. As mentioned in the previous update, prices could potentially test targets for the downside in the 2,375-2,400 Malaysian ringgit (MYR) a tonne range. Prices dropped even sharply and stretched lower in a panic driven move triggered by sell-stops and brave buyers unable to withstand the assault of bears, thereby exiting the market in disgust further accelerating the sell-off. Presently, the recovery looks more like a dead cat bounce than a sustained one. Chances exist for a retest of recent lows or even lower. Resistances will be strong in the 2,465-2,500 MYR/tonne range. Ideally, resistances in this zone could cap for a decline again. Only an unexpected rise above 2,650 MYR/tonne could temporarily postpone the bearishness.
Presently, the wave counts remain mixed with no clarity at all on long-time direction. As mentioned in the earlier update, we will give up the expectation of an impulse still in progress on a daily close below 2,675 MYR/tonne and such a fall could target 2,400 MYR/tonne at least. A possible wave “C” is now in progress with potential targets in the 2,350-75 MYR/tonne range which has been broken and looks like it could extend to 1,975-95 MYR/tonne. Ideally, a new impulse could begin from lows near 1,995-2,050 MYR/tonne levels. The averages in MACD are below the zero line of the indicator hinting at bearishness to be intact.
Therefore, look for palm oil futures to test the resistance levels and then decline.
Supports are at MYR 2,310, 2,220 and 2,095. Resistances are at MYR 2,500, 2,585 and 2,650.
(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.