Malaysian palm oil futures on the Bursa Malaysia Derivatives ended lower on Friday due to rising supplies and lower demand taking prices sharply lower ahead of a holiday weekend. Palm oil exports from Malaysia slipped in the first seven months of this year due to weaker demand from China, Pakistan and the US. Adding to the woes, some buyers from China, the world’s second-largest importer of crude palm oil, with 14 per cent of global imports, are having difficulty obtaining letters of credit as banks clamp down on funding for commodities. The soya complex was also pressured from strong early harvest soyabean yield results in the US grain belt, which in some areas were more than twice the average forecast by the US Department of Agriculture.

CPO active month November futures bounced back as expected but could not hold on to gains and follow-through higher after breaking key supports. As mentioned earlier, the extremity of the fall makes us believe that there is more to come. As illustrated in the previous update, extremely oversold conditions warn us of possible retracement in the coming sessions. We expected the downtrend to continue lower after testing the resistance levels. However, the retracement was limited to MYR 2,050/tonne levels and the subsequent decline has already begun towards 1,900 levels. Price structures indicate that the fall could even extend lower to MYR 1,845/tonne levels, being a long-term trend line support point from where a possible intermediate bottom could be seen for the current fall.

As mentioned earlier, a corrective A-B-C in progress with an equality target now stretching to 2,135 levels or even lower. With the present structures, there is a good chance that we could be in a five wave impulse moving lower with equality targets near 1,700 levels. The present decline has targets near 1,845 levels from where a strong retracement could commence. Despite, a minor retracement, RSI is still in the extremely oversold zone now indicating a possible upward correction in the offing. The averages in MACD are still below the zero line of the indicator hinting at bearishness to be intact. Only a crossover again above the zero line could hint at resumption in the bullish trend.

Therefore, look for palm oil futures to test the support levels and then bounce.

Supports are at MYR 1,900, 1,845 and 1,825. Resistances are at MYR 1,985, 2,052 and 2,100.

The writer is the Director of Commtrendz Research. There is risk of loss in trading.

comment COMMENT NOW