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Malaysian palm oil futures ended slightly higher on Friday due to a weakening ringgit and firmer soya oil prices. Palm oil has fallen nearly two-thirds from a peak of 4,486 ringgit in the past nine months due to easing crude oil prices, tight credit, higher supplies and weak demand from top consumers China and India. However, prices could find support now due to the implementation of a mandatory bio-diesel blend. The differentials between soya oil and palm oil are also hig hly in favour of palm and production unlikely to rise further due to falling yields.

CPO futures pulled back higher in line with our expectations. Important resistance now lies at 1725 Malaysian ringgit (MYR) a tonne levels. Another important resistance lies at 1901 MYR/tonne beyond this. Presently, we anticipate a consolidation between 1450-1675 MYR/tonne and break higher. Possibility of a test of 2077 MYR/tonne cannot be ruled out being a fibonnaci retracement point as shown in the chart above. This is our favored expectation.

However, failure to cross the recent high at 1725 MYR/tonne and a break below 1400 MYR/tonne could once again drag prices lower towards recent lows or even lower. The A new impulse began from 1427 MYR/tonne and this could be the third wave, which has at 4486 MYR/tonne. A prolonged corrective fourth wave in the form of A-B-C is in progress now. Believe we could be in a wave “C” with possible targets extending even lower towards 1600 MYR/tonne. RSI is in the neutral zone now, indicating that it is neither oversold nor overbought. 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 consolidate and rise higher subsequently.

Supports are at MYR 1565, 1485 and 1330. Resistances are at MYR 1689, 1727 and 1901.

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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