Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended higher on Friday, buoyed by hopes of strong demand and concerns of adverse weather hurting the US soya crop. But worries that China could raise interest rates weighed on the market. Good demand from West Asia and other countries ahead of the holy month of Ramadan in August continues to underpin prices. However, Malaysian palm oil stocks probably rose last month as favourable weather aids output. Fundamentals portray a mixed picture with weather and demand supporting prices while higher output and better growing conditions on the other hand capping gains.

CPO futures moved as expected. Initially we saw a decline to our supports at 3,350 Malaysian ringgit (MYR) a tonne and then rose strongly higher from there. Initial resistance is at 3,465 MYR/tonne followed by 3,510 MYR/tonne. Ideally, prices could get capped in this zone again for a decline back towards the 3,325-3,350 MYR/tonne zone levels initially. Fall below 3,405 MYR/tonne could now result in a double top pattern with potential targets near 3,250 MYR/tonne. Markets are swinging from bullish to bearish and vice-versa, which signifies indecisiveness presently. As mentioned earlier, a rise above 3,380 MYR/tonne negated our bearish view for 3,025 MYR/tonne. Only a direct fall below 3,250 MYR/tonne will revive bearish hopes for 3,025 MYR/tonne again.

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. Unlike in the previous update, we see the fall towards 3,133 MYR/tonne as an end of wave “A” now and not the wave “C” as anticipated earlier. A corrective wave “B” has met one potential target near 3,465 MYR/tonne with the possibility of stretching higher towards 3,510 MYR/tonne. A wave “C” kind of a decline looks likely after that. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone above the zero line of the indicator indicating a bullish reversal.

Therefore, look for palm oil futures to test the support levels.

Supports are at MYR 3,405, 3,350 and 3,250. Resistances are at MYR 3,465, 3,510 and 3560.

(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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