Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended sharply lower on Friday on profit-taking after prices hit a 13-month high earlier in the week, after the industry regulator Malaysian Palm Oil Board data pointed to lower-than-expected stocks and improving exports, painting a bullish picture for the edible oil. Malaysia's palm oil stocks for March fell to a seven-month low at 1.96 million tonnes, exceeding estimates. Export demand, meanwhile, recorded a monthly gain of close to 9 per cent for the first 10 days of April. Cargo surveyors Intertek Testing Services and Societe Generale de Surveillance will release exports for the first 15 days of April on Monday, which could provide further clues for market direction.

CPO active month futures moved as expected. As mentioned in the previous update, fall below 3,585 Malaysian (MYR) a tonne could be the first sign of a corrective decline to have begun. And such a decline could potentially test the recent gap at 3,445 MYR/tonne. Intermediate support will be seen at 3,485/95 MYR/tonne levels. It is a much needed correction for the uptrend to sustain. Ideally, prices should not go below 3,445/50 MYR/tonne levels and find support even before here and then start rising higher towards 3,700 or even higher to 3,785 MYR/tonne. This is our favoured view. Only an unexpected decline and close below 3,425 MYR/tonne could cause doubts on our bullish view.

We are looking the impulse that began from 1,427 MYR/tonne, which hit 4,486 MYR/tonne and a subsequent 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 is underway with 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 are 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 support levels and then rise higher subsequently.

Supports are at MYR 3,485, 3,445 and 3,400. Resistances are at MYR 3,555, 3,595 and 3,665.

(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 April 14, 2012)
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