Malaysian palm oil futures on Bursa Malaysia Derivatives exchange dropped to a seven-month low on Friday on fears that a higher output cycle will lead to rise in stocks. Markets expect production to rise in the second half in South-East Asian producing countriesthat make up over 90 per cent of global output. Stocks in Malaysia are expected to rise above a 16-month high of 1.92 million tonnes hit last month. This was despite robust export figures estimated by cargo surveyors during June 1-20. Falling energy prices further dented sentiment. Also adding to bearish sentiment was Tuesday's move by top palm oil producer Indonesia, which said it would lift its palm oil export tax in July to 20 per cent.
CPO futures are moving in line with our expectations. As mentioned in the previous update, fall below 3,250 Malaysian ringgit (MYR) a tonne has revived bearish hopes once again for 3,025 MYR/tonne again. Failure to hold support at 3,120-25 MYR/tonne could pressure prices further and, therefore, there is a possibility of further downside to 3,065 MYR/tonne or even lower to our favoured target at 3,025 MYR/tonne. Any rallies to 3,165-75 levels could be met with selling again. In the absence of any clear technical reversal signs, we favour resistances to be capped for a decline again towards the above mentioned levels. A mild bounce higher can be seen on the back of oversold indications, but it is unlikely that it could sustain and rally higher. Subsequent to that, it could attempt to test 3,025 MYR/tonne our favoured level which has been eluding us so far.
We believe the impulse that began from 1,427 MYR/tonne and 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 1335 MYR/tonne and the third wave with a projected objective of 3,900 MYR/tonne has been met. Unlike in the previous update, we counted the fall towards 3,133 MYR/tonne as an end of wave “A” now and not the wave “C” as anticipated earlier. A corrective wave “B” has met one potential target near 3,465 MYR/tonne. A wave “C” kind of a decline looks likely with potential to test 2,600 MYR/tonne. RSI is in oversold zone now indicating that a possible upward correction is in the offing. The averages in MACD have gone below the zero line of the indicator again indicating strong bearishness ahead.
Therefore, look for palm oil futures to test the support levels and then bounce higher.
Supports are at MYR 3,065, 3,025 and 2,925. Resistances are at MYR 3,165, 3,235 and 3,285.
(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 email@example.com.)