Malaysian palm oil futures rose higher due to weather worries. Harvesting and transportation may be disrupted by rain in the main southern state of Johor. Trading volumes may also be thin, as most participants will be absent ahead of the Lunar New Year holidays next week. Meanwhile, concerns about a slowdown in exports of soyabeans and soya products from Argentina due to a port strike may give support to global vegetable-oil prices. Supply constraints will last at least until the end of the first half of this year and average prices are expected to reach a record in the 2010-2011 marketing year. Forecasts that a La Nina event that caused drought in Argentina and flooding in Asia may last longer than expected could keep prices underpinned in the short-term.

CPO futures are moving in line with our expectations. As expected, prices found support in the 3,625 Malaysian ringgit (MYR) a tonne zone once again. Potential exist now for April futures to gradually move towards 3,750-65 MYR/tonne. Failure to follow-through higher above 3,765 MYR/tonne could be construed as a failure and result in a sharp fall from there. Such a fall could aim for 3,500 MYR/tonne levels too, being a long-term channel support point. Many negative patterns are noticed, including a head-and-shoulder pattern which could drag prices lower in the coming sessions. Only an unexpected rise above 3,835 MYR/tonne could once again revive hopes for a retest of 3,900 MYR/tonne or even higher to 4,000 MYR/tonne.

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. We will review our wave counts now in line with the bullishness seen in the complex. In the big picture, a new impulse began from 1,335 MYR/tonne and the third wave with a projected objective of 3,900 MYR/tonne has been met. A possible A-B-C correction is underway within the bigger impulse. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator indicating the bullish trend to be intact. Only a cross-over below the zero line again could indicate bearishness again. Therefore, look for palm oil futures to test the resistance levels and the decline lower again.

Supports are at MYR 3,675, 3,625 and 3,550. Resistances are at MYR 3,745, 3,785 and 3,835.

(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.)

Related Topics