Malaysian crude palm oil futures on Bursa Malaysia Derivatives exchange ended lower on Friday on demand concerns. Worries about the US debt crisis and improving weather in oilseed-growing areas in the US pressured prices lower. Cargo surveyor Intertek Agri Services is scheduled to issue July data Saturday while SGS (Malaysia) Bhd. will issue its estimate on Monday. Some support will, however, be seen as the main consumers India and China could step up purchases to take advantage of a wide discount to soya oil. Palm oil, which has declined 14 per cent so far this year, is trading at a huge discount below soya oil due to ample supplies in Indonesia and Malaysia.

CPO futures are moving perfectly in line with our expectations. Failure to follow-through above 3,150-70 Malaysian ringgit (MYR) a tonne range has dented recent bullish sentiment. On one side, a break above 3,145 MYR/tonne on October could result in a rise towards 3,250 MYR/tonne. On the other side, our favoured view expects 3,155-65 MYR/tonne to get capped for a decline below recent low of 3,015 MYR/tonne opening the way for 2,950 MYR/tonne or even lower. Break below 3,045 MYR/tonne will confirm that the decline has begun targeting the above mentioned levels. Direct rise above 3,145 MYR/tonne however could hint at some near-term strength again bringing back to focus 3,250 MYR/tonne levels, which we do not favour.

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. Unlike in the previous update, we counted the fall towards 3,133 MYR/tonne as an end of wave “A” now and not the wave “C” as anticipated earlier. 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. RSI is in neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator again indicating bearishness to be intact.

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

Supports are at MYR 3,045, 3,015 and 2950. Resistances are at MYR 3,095, 3,125 and 3,150.

(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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