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 earlier, 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. However, forecast of lower US soya acreage could be supportive.

CPO futures moved exactly in line with our expectations. As expected CPO futures declined towards 3,250 Malaysian ringgit (MYR/tonne). A minor pullback to 3,475 MYR/tonne or even higher to 3,510-20 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. Our favoured view now expects prices to find resistance in the 3,500-3,550 MYR/tonne zone and correct lower towards 3,300 MYR/tonne subsequently in the coming sessions.

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 1,335 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 in the form of a wave “C” could have ended at 3,250 MYR/tonne. Only a rise above 3,650 MYR/tonne will confirm that a new impulse has begun. Else, we can still see the 3,100-105 MYR./tonne being tested on the downside subsequently. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are below the zero line of the indicator still indicating bearishness to be intact. Only a cross-over above the zero line again could indicate a reversal in trend. Therefore, look for palm oil futures to test the resistance levels and then rise higher again.

Supports are at MYR 3,425, 3,385 and 3245. Resistances are at MYR 3,495, 3,510 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.)

Related Topics