Palm oil may test resistance

Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended higher on Friday after a key plantings report in the US showed soyabean stocks were tight. The USDA reports underscored that US farmers are reaching limits of arable land in the world's biggest crop exporter. Higher palm oil output and the current dip in demand have pressured prices in recent months. In other data, exports of Malaysian palm oil products for March fell 0.5 per cent to 11,05,440 tonnes from 11,10,672 tonnes shipped in February, cargo surveyor Intertek Testing Services said. Output is moving into a higher cycle from the first quarter of 2011 after two years of weak yields and erratic weather.

CPO futures are moving exactly in line with our expectations. A pullback to 3,430 Malaysian ringgit (MYR) a tonne or even higher to 3,485 MYR/tonne can be seen initially now also being a trend line resistance point as seen in the chart above. Favoured view now expects prices to find support on any dips to 3,250-300 MYR/tonne to hold for a test of 3,450-3,500 MYR/tonne zone. If prices continue to rise above 3,495-3,500 MYR/tonne, being a strong near-term resistance then we might see prices edging even higher towards 3,600 MYR/tonne levels. However, we do not favour this outcome. Unexpected fall below 3,245 MYR/tonne could change the picture to neutral.

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 3,165 MYR/tonne. Only a rise above 3,670 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 in the coming sessions. Supports are at MYR 3,275, 3,235 and 3,160. Resistances are at MYR 3,375, 3,430 and 3,495.

(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>. )

COMMENT NOW