The Hindu Business Line : Palm oil futures may head lower

Malaysian palm oil futures ended sharply lower on Friday hitting a fresh 18-month low on spillover weakness from soya oil and crude oil and on weak CPO export numbers. Cargo surveyor Intertek said Friday it has estimated Malaysia’s palm oil exports in September down 19 per cent on month at 1.20 million tonnes. Exports to China in September were estimated at 314,816 tonnes, down from 407,975 tonnes a month earlier. Shipments to the European Union fell to 258,067 tonne s from 315,804 tonnes. Weakness in the energy markets are also adding to the depressing mood in sentiment. Higher stocks coupled with poor export offtake should keep any upside rallies short- lived.

CPO futures lower against our expectations. We expected a rise initially towards 2500 Malaysian ringgit (MYR) a tonne followed by good resistance there and subsequently a fall below 2000 MYR/tonne. However, the initial up tick did not materialise and we saw prices heading directly lower below 2000 MYR/tonne. One target at 1935 MYR/tonne has been achieved. Further downside looks likely towards 1870 MYR/tonne.

Ideally, some basing signs can be expected here, failing which prices could even drag lower towards 1625 MYR/tonne. 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. Believe we could be in a wave “C” with possible targets extending even lower towards 1800 MYR/tonne. RSI is in the oversold zone now, indicating that it is neither oversold and a possible upward correction in the offing. The positive divergence we saw in the previous week has disappeared, which is a sign of bearishness to continue. The averages in MACD are still below the zero line of the indicator indicating overall bearishness to be intact. Therefore, look for palm oil futures to head lower.

Supports are at MYR 1935, 1870 and 1625. Resistances are at MYR 2020, 2125 and 2250.

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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Palm oil futures may head lower