Malaysian palm oil futures on the Bursa Malaysia Derivatives Exchange ended higher on Friday, snapping three straight sessions of losses due to rising supply. Palm oil supply could outstrip demand as top world producers Indonesia and Malaysia head into seasonally higher output cycles, which have been on a losing streak since 2011. However, Indonesian and Malaysian governments have pledged to boost domestic consumption of palm oil for biodiesel to help whittle down stockpiles, which is mildly supportive for prices.

In other markets, Brent crude oil dropped below $109 a barrel on Friday, heading for its third straight weekly loss, with diplomatic efforts over Syria and Iran helping ease worries about risks to supply from West Asia further depressing edible oil markets.

Crude palm oil active month futures are moving with a bearish bias. As mentioned in the previous update, a decline below key supports could dent bullish expectations and this could potentially revive bearish hopes. A fall below 2,275 Malaysian ringgit a tonne (MYR/t) increases further the chances of a decline to recent lows at 2,210 MYR/t initially or even lower to 2,150 MYR/t levels. Resistances are now at 2,345-50 MYR/t, followed by 2,385 MYR/t levels now. Only a push above 2,415 MYR/t could revive bullish hopes again for a move above 2,500 MYR/t, which we do not favour now.

In the medium-term, a broad consolidation in the 2,175-2,500 MYR/t levels is still under way. A close below 2,150 MYR/t could turn the picture weak, targeting lows near 1,850-1,900 MYR/t levels. However, there is hope for prices to find strong support near 2,210 MYR/t levels. If it does, prices could gradually grind higher.

For the time being, we will stick to the current wave counts. Only a close below 2,270 MYR/t could force a review. The present decline has met an intermediate wave target at 2,135 MYR/t and the subsequent impulse characteristics of the present move makes us believe that it could exhaust near 2,500 MYR/t levels and then a subsequent decline to 2,345-50 MYR/t levels. It looks like the anticipated decline materialised. Further to this decline, a sharp third wave move looks likely for 2,575-2,600 MYR/t in the coming months.

Relative Strength Index is in the neutral zone, indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator, hinting at a bearish reversal. Only a crossover above the zero line again could again hint at possible bullishness. Therefore, look for palm oil futures to test the support levels.

Supports are at MYR 2,270, 2,210 and 2155. Resistances are at MYR 2,345, 2,385 and 2,425.

(The author is the Director of Commtrendz Research and is 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. The author can be reached at >gnanasekar.t@gmail.com .)

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