Malaysian palm oil futures on Bursa Malaysia Derivatives exchange pulled back from recent lows on Friday after the European Central Bank pledged to protect the Euro Zone in comments that helped risk assets bolstered risk appetite. The ECB President’s reaction also raised expectations it will move quickly to tackle skyrocketing borrowing costs in countries such as Spain. But crude palm oil (CPO) still posted an almost four per cent weekly loss, the worst performance since mid-June, as forecasts for rain in the US Midwest relieved some fears of tightening global oilseed supplies. Slowing exports coupled with better production expected in Malaysia this month could boost palm oil stock levels and ease some pressure off tightening global oilseed supplies. CPO active month futures tanked lower breaking key supports. As mentioned in the previous update, failure to hold support at key levels has dashed our bullish hopes for 3,325 Malaysian ringgit (MYR) a tonne. The bullish pattern that we have been tracking has also been violated. Decline below 2970-75 MYR/tonne has hinted at weakness going forward. This level could become a strong resistance to surpass in the near-term. Immediate support is at 2845-50 MYR/tonne being a trend line support point followed by 2745-50 MYR/tonne close to the recent low. Beyond here, prices could even aim for 2415-20 MYR/tonne. Immediately, we see a minor pullback rally to either 2975 MYR/tonne or even higher to 3015 MYR/tonne followed by a sustained fall to the above mentioned levels.

A possible new impulse ended at 3628 MYR/tonne. A corrective decline in the form of a wave “A” could still be in progress. A corrective wave “B” could unfold with potential targets near 3210 MYR/tonne or even higher to 3325 MYR/tonne. A wave “C” kind of a decline below 2700 MYR/tonne looks likely subsequently in the coming months. Alternatively, an “A-B-C” corrective move is coming to an end near 2750 MYR/tonne and subsequently a new impulse will begin targeting 3,300 MYR/tonne levels. Since prices have gone below 2920 MYR/tonne, we are abandoning this wave count and will elaborate on the fresh counts. The averages in MACD have gone below the zero line of the indicator hinting at weakness again. Therefore, look for palm oil futures to pullback higher initially and then decline. Supports are at MYR 2900, 2845 & 2750, Resistances are at MYR 2975, 3015 & 3075.

(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 July 28, 2012)
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