Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended lower on Friday due to weak economic data from the US and China. This was despite supportive fundamentals with exports on the rise even as stocks declined due to up-coming festival demand.

Malaysian palm oil exports increased by 15 per cent in the first 20 days of the month compared with a month ago period. Prices hit a three-week high earlier on concerns that dry weather in the US could tighten global oilseeds supply, but the gain could not be sustained as bleak data showing a slowdown in Chinese and European factory activity again dominated concerns.

CPO active month futures pulled back higher as per our expectations. As mentioned in the previous update, since the present fall is coming close to our long-term targets near 2,700 Malaysian ringgit (MYR) a tonne, the turnaround could also be equally sharp, though at present it is unlikely to sustain and rise higher above 3,075-3,100 MYR/t. Prices pulled back higher towards 3,060 MYR/t and then declined from there. Strong support is at 2,900-10 MYR/t. Favoured view expects supports to hold for a push higher towards 3,135-45 MYR/t levels in the coming sessions. An unexpected decline below 2,865 MYR/t could dampen our bullish view. Such a fall, could test the 2,750-55 levels an earlier support from where price rallied to 3,600 MYR/t levels.We will have to make changes to the wave counts as certain crucial levels have been breached and we will focus on our downside medium-term targets. A possible new impulse ended at 3,628 MYR/t. A corrective decline in the form of a wave “A” could still be in progress. A corrective wave “B” could unfold with potential targets near 3,185-3,210 MYR/t. A wave “C” kind of a decline below 2,700 MYR/t looks likely in the coming months. Alternatively, an “A-B-C” corrective move is coming to an end near 2,750 MYR/t and subsequently a new impulse will begin targeting 3,300 MYR/t levels.

The averages in MACD are below the zero line of the indicator indicating a bearish reversal. Only a cross-over again above the zero line again could hint at resumption of up-trend. Therefore, look for palm oil futures test the support levels and then rise higher.

Supports are at MYR 2900, 2865 and 2755, Resistances are at MYR 2975, 3045 and 3100.

( 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 historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com. )

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