Malaysian palm oil futures on BMD exchange ended sharply higher on Friday due to weather concerns in South America and hopes that a possible solution to the Greece crisis can be seen shortly. Concerns of a smaller soyabean crop in drought-hit Brazil and Argentina lifted CPO prices posting sharp gains. However, slowing demand and on-going concerns over the debt crisis could weigh on prices going forward. In signs of slowing demand, cargo surveyor SGS said Malaysian palm oil exports during February 1-15 fell by 4.3 per cent compared to almost 15 per cent from a month ago. Energy prices were higher supported by supply concerns as European buyers sought alternatives to sanctions-hit Iranian oil and the prospect of a revival in demand as Greece edged closer to a bailout deal.

CPO May futures rose higher perfectly in line with our expectations. As mentioned in the previous update, a test of the strong trendline resistance at 3,225 Malaysian (MYR) a tonne looked likely. A close above 3,240 MYR/tonne has opened the possibility of rise higher towards 3,700 MYR/tonne in the coming months. Initial resistance is at 3,350 MYR/tonne, from where a corrective decline can be seen. Support is seen at 3,215 MYR/tonne followed by important support at 3,175 MYR/tonne. Unexpected decline below 3,075 MYR/tonne could however, dent our bullish view.

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. A corrective wave “B” has met one potential target near 3,465 MYR/tonne. A wave “C” kind of a decline ended at 2,755 MYR/tonne itself. A possible new impulse has begun now with immediate near-term targets in the 3,350-65 MYR/tonne range and long-term targets at 3,700 MYR/tonne. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone above the zero line of the indicator indicating a bullish reversal. Only a cross-over again below the zero line again could hint at resumption in the down trend.

Therefore, look for palm oil futures to test the resistance levels.

Supports are at MYR 3,215, 3,175 and 3,085. Resistances are at MYR 3,270, 3,350 and 3,425.

(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.)

(This article was published on February 18, 2012)
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