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Malaysian palm oil futures ended lower on Friday mostly on lower crude oil prices. A likely increase in supplies from Argentina weighed on prices. Expectations of Malaysia’s palm oil output reaching a record in 2008 also weighed on prices. Weather has been conducive so far this year for palm oil production. Initially, the Government had projected output of 16.2 million tonnes, up from 15.8 million tonnes in 2007. According to estimates from the Malaysian Palm Oil Board, production rose 22.8 per cent on year to 8.2 million tonnes during the first half of 2008. Poor export off take and higher production to pressure prices lower now.

CPO active contract moved in line with our expectations. As we have been maintaining, our favoured view expected a break lower to decline sharply lower towards 3300 Malaysian ringgits (MYR) a tonne level or even lower as long as resistances at 3745-95 MYR/tonne cap upside attempts. The diagonal pattern has been broken now and shows a potential to edge lower towards 3120 MYR/tonne being a fibonnaci retracement levels as seen in the chart above. Intermediate support is at 3285 MYR/tonne now. Any rallies could find difficult to cross the 3400-425 MYR/tonne zone now. The wave counts need a complete re look, as the present move has altered most of the big picture counts we have been tracking so far. A new impulse began from 1427 MYR/tonne and this could be the third wave, which has not ended so far. We can expect a corrective fourth wave in the form of A-B-C in progress now. A possible fifth wave could have begun and a close above 3910 MYR/tonne could confirm this possibility. RSI is in the neutral zone now, indicating that it is neither overbought nor oversold. The averages in MACD are above the zero line in the indicator indicating bullishness to be intact. Therefore, look for palm oil futures to test the support levels.

Supports are at MYR 3345, 3285 and 3125. Resistances are at MYR 3420, 3445 and 3518.

Gnanasekaar .T

(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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