Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended higher on Friday, recovering all the losses made earlier in the week, as USDA forecast a lower soya output lifting the market from its recent lows. The US Department of Agriculture lowered its output estimate for soyabeans below trade estimates; and further adding to the bullish sentiment was the expectation that Malaysian palm oil output in the second half of this year may not be as high as expected. Edible oil markets also took support from recovering energy prices as fears of an economic collapse receded.

CPO futures are moving perfectly in line with our expectations. As mentioned in the previous update, while 3,155-65 Malaysian ringgit (MYR) a tonne gets capped, a decline below recent low of 3,015 MYR/tonne could materialise opening the way for 2,925-50 MYR/tonne or even lower. And subsequently, a bounce to 2,995-3,015 MYR/tonne was expected and that also materialised according to our view. From here, it looks like there is possibility to extend higher towards 3,045-75 MYR/tonne. However, a decline towards 2,900 MYR/tonne or even lower can be seen after this uptrend. This is our favoured view. An unexpected close above 3,085 MYR/tonne could postpone the bearishness.

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. 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 even 2,600 MYR/tonne in the bigger picture. RSI is in neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator again indicating bearishness to be intact.

Therefore, look for palm oil futures to test the resistance level initially and then fall.

Supports are at MYR 2,975, 2,921 and 2875. Resistances are at MYR 3,045, 3,075 and 3,105.

(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 August 13, 2011)
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