Palm oil to test resistance, drop

Malaysian palm oil futures on Bursa Malaysia Derivatives Exchange ended lower on Friday on demand worries.

Cargo surveyor Intertek Testing Services reported that Malaysian palm oil shipments fell by 21 per cent to 2,97,308 tonnes during January 1-10 compared with a month ago as crude palm oil shipments slowed.

Data from another cargo surveyor Societe Generale de Surveillance showed that exports in the same period fell 22 per cent. Prices were also under pressure after data from industry regulator Malaysian Palm Oil Board showed that December end-stocks in the No 2 producer had edged up to 1.99 million tonnes, higher than market expectations.

Refined palm oil’s will take a hit after India raised import duties.

India on Thursday raised the import duty on refined palm oil to 10 per cent from 7.5 per cent.

Crude palm oil active month futures fell sharply lower against expectations.

As mentioned in the previous update, a fall and close below 2,535 Malaysian ringgit a tonne (MYR/t) could dash our expectations of the resumption of uptrend. One important target has been met at 2,510-15 MYR/t levels. Stronger support is seen at 2,485-90 MYR/t level, being a neckline point for the inverted head-and-shoulder pattern which resulted in an uptrend to 2,690-95 MYR/t earlier.

Any pullbacks will find it difficult to cross resistances at 2,555 MYR/t followed by 2,595 MYR/t. We believe prices could aim at 2,450-60 MYR/t levels in the short-term from where buying interest could possible emerge again. We expect a recovery to 2,575-95 MYR/t levels initially and then prices to decline again to above mentioned levels.

As mentioned earlier, prices met an intermediate wave target at 2,135 MYR/t and corrective decline to 2,345-50 MYR/t levels, followed by a sharp third wave move to 2,575-2,600 MYR/t materialised.

Price structures suggest a possible third wave move ending at 2,690 MYR/t and a corrective, fourth wave with targets at 2,450 MYR/t or even lower.

Relative strength index is in the neutral zone now, 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 hint at bullishness.

Therefore, look for palm oil futures to test the resistances and then decline.

Supports are at MYR 2,510, 2,485 and 2,455. Resistances are at MYR 2,555, 2,595 and 2,620.

(The author is the Director of Commtrendz Research and also in the advisory panel of commodity exchanges and corporate houses. The views expressed in this column are his own.

This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at >gnanasekar.t@gmail.com .)

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