Crude palm oil futures on Bursa Malaysia Derivatives exchange ended sharply lower tracking soya oil prices, after the US Department of Agriculture estimated higher-than-expected crop prospects and stock levels. The USDA's annual acreage and quarterly grain stocks reports showed ample supplies that pressured prices lower. USDA reported June 1 soyabean stocks at 619 million bushels, above the average trade estimate of 596 million bushels. CPO is also pressured by expectations for stocks to soar above 2 million tonnes at a time when output is growing and demand expected to be weak. Weather also continues to support palm oil growing areas boosting supplies and pressuring prices lower.

CPO futures are moving perfectly in line with our expectations. As expected due to the oversold conditions of the market we saw a pullback initially towards 3,125-45 Malaysian ringgit (MYR) tonne levels. However, subsequently the decline resumed towards 3,025 MYR/tonne in line with our expectations. Failure to find support at 3,000-3,025 MYR/tonne levels could result in further weakness which even has the potential to test 2,950 MYR/tonne in the coming sessions. Favoured view however expects the 3,000-3,025 MYR/tonne to hold for a rally higher again. Any rallies to 3,085-3,100 levels could be met with selling again. Only a rise and close above 3,145 MYR/tonne could revive bullish hopes.

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 counted 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 3465 MYR/ton. A wave “C” kind of a decline looks likely with potential to test even 2,600 MYR/tonne in the bigger picture. RSI is in oversold zone now indicating that a possible upward correction is in the offing. The averages in MACD have gone below the zero line of the indicator again indicating strong bearishness ahead.

Therefore, look for palm oil futures to test the support levels and then bounce higher.

Supports are at MYR 3,000, 2,950 and 2,910. Resistances are at MYR 3,085, 3,145 and 3200.

(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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