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Malaysian palm oil futures ended sharply lower on Friday due to weak demand and rising production. Energy futures too declined sharply on doubts over economic recovery and weakening demand. Though the July 1-10 palm oil exports data was encouraging, it was more of a recovery from a slowdown compared with the previous month. Demand staged a recovery as cargo surveyors ITS and SGS reported increases of up to 44.8 per cent to 4,19,100 tonnes during July 1-10. Palm oil stocks in Malaysia, the No. 2 supplier of the tropical oil, stood at 1.41 million tonnes, the Malaysian Palm Oil Board said, making it the highest since February. However, production slowed down and the yield stress continued to be the only supportive factor.

CPO Active September futures fell sharply lower against our expectations. Failure to hold support in the 2,005-2,050 Malaysian ringgit/tonne (MYR/tonne) increases the chances of further downside in the coming sessions. A minor pullback could now be seen. And such a pullback can have resistance at 2,130 MYR/tonne followed by stronger resistances in the 2,250-2,290 MYR/tonne zone. Sustained bullishness can only be seen on daily close above 2,425 MYR/tonne now. Any pullback rally could find itself difficult to sustain and could be sold-off dragging prices lower towards 1,895 MYR/tonne or even lower towards 1,833 MYR/tonne. A new impulse began from 1,427 MYR/tonne and this could be the third wave, which has at 4,486 MYR/tonne.

A prolonged corrective fourth wave in the form of A-B-C is in progress now.

A possible wave “C” could have begun with possible targets extending even lower towards 1,200 MYR/tonne. Failure to hold 2,050 MYR/tonne has opened the doors for the downside now. RSI is in the oversold zone now, indicating a possible correction in the offing. The averages in MACD have gone below the zero line of the indicator indicating a bearish reversal. Only a crossover above could once again begin a bullish trend. Therefore, look for palm oil futures to test the support levels and rise higher from there.

Supports are at MYR 1,985, 1,895 and 1,833. Resistances are at MYR 2,058, 2,135 and 2,250.

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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