Malaysian palm oil futures on BMD exchange ended lower on Friday after a strong earthquake hit Japan, weighing on commodity demand. Concerns about higher inflationary pressures in China, in February compared with a year ago, leading to speculation that more fiscal tightening could further dent demand, led to a bearish market sentiment. Malaysia's February inventory data released Thursday by the official MPOB, estimated end-February stock levels rose 4.2 per cent to 1.48 million tonnes, compared with market expectations for inventories of 1.39 million-1.40 million tonnes. Also output in the world's second-largest producer after Indonesia rose 3.5 per cent from the previous month, to 1.09 million tonnes.

CPO futures moved exactly in line with our expectations. As expected CPO futures stretched higher to 3,700 Malaysian ringgit (MYR) a tonne levels and found good resistance there and subsequently, a decline towards 3,350 MYR/tonne was seen. We have seen the supports at 3,350 MYR/tonne hold initially. A minor pullback to 3,475 MYR/tonne or even higher to 3,530 MYR/tonne can be seen initially now also being a trend line support point as seen in the chart above. If prices continue to rise above 3,530 MYR/tonne then we might see prices edging higher again towards 3,600 MYR/tonne levels. However, a subsequent decline to 3,200 or even lower to 3,105 MYR/tonne looks likely being a possible near-term target for CPO futures.

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 1335 MYR/tonne and the third wave with a projected objective of 3,900 MYR/tonne has been met. Most probably a wave “A” target has been met. A corrective wave “B” targeting 3,625-3,700 MYR/tonne has also materialised. The present fall could be a wave “C” with potential targets between 3,105-3,155 MYR/tonne. RSI is in the oversold zone now indicating that a possible upward correction can be seen. The averages in MACD are below the zero line of the indicator indicating bearishness. Only a cross-over above the zero line again could indicate a reversal in trend. Therefore, look for palm oil futures to test pullback higher and then fall lower again.

Supports are at MYR 3,335, 3,250 and 3,105. Resistances are at MYR 3,445, 3,530 and 3,600..

(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. )

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