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Palm oil may test resistance, decline

Gnanasekaar .T
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Malaysian palm oil futures on the Bursa Malaysia Derivatives exchange ended marginally higher on Thursday as market participants squared positions ahead of a long weekend. Firm export demand and forecasts for diminishing US soya supplies supported prices. Exports rose as much as 6.6 per cent during the first 25 days of August from a month ago on higher demand from major food buyers India and China, cargo surveyor data showed. Further gains in the Malaysian market will hinge on export trends for August by cargo surveyors Intertek Agri Services and SGS (Malaysia) Bhd. Both surveyors are scheduled to issue August shipment data on Monday.

CPO active month futures are moving perfectly in line with our expectations. As mentioned in the previous update, a corrective decline to 2,975 Malaysian ringgit (MYR) a tonne levels is likely in the coming days. While supports in the 2,950-75 MYR/tonne hold and a subsequent close above 3,185 MYR/tonne could negate our overall bearish outlook for CPO and result in a possible move towards 3,485-3,500 MYR/tonne levels in the coming months. However, such a possibility still looks very unclear. Initial resistance will be seen at 3,065 MYR/tonne followed by 3,125 MYR/tonne levels now. Till prices do not climb and close above 3,185 MYR/tonne levels, we will continue to stick to a stronger decline post this move till we are proved wrong.

A possible new impulse ended at 3,628 MYR/tonne. A corrective decline in the form of a wave “A” could still be in progress. A corrective wave “B” could unfold with potential targets near 3,210 MYR/tonne or even higher to 3,325 MYR/tonne. A wave “C” kind of a decline below 2,700 MYR/tonne looks likely subsequently in the coming months. Alternatively, an “A-B-C” corrective move is coming to an end near 2,750 MYR/tonne and subsequently a new impulse will begin targeting 3,300 MYR/tonne levels. Since prices are holding well and showing some signs of strength, we will stick this count for some more time and then decide on the fresh wave counts. The averages in MACD have gone above the zero line of the indicator hinting at a bullish reversal.

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

Supports are at MYR 2,975, 2,935 and 2,900. Resistances are at MYR 3,065, 3,125 and 3,185.

Gnanasekaar .T

(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 in the Business Line print edition dated September 2, 2012)
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