Palm oil may test resistance, fall

Malaysian palm oil futures on BMD exchange ended higher on Friday on strong demand on the back of weather worries in the edible oil complex. Palm oil was bolstered by adverse crop weather in Europe and the US that threatened to curb grain supplies, fuelling a rally across agri-commodity futures. However, talks of higher stocks this month capped further gains. Also, prospects of higher US soya acreage this year if farmers switch some of their unplanted corn area to soya could damage bullish sentiment. Presently, excessive wet weather and flooding continues to delay corn and soyabean plantings in the eastern and southern portion of the US Midwest.

CPO futures moved against our expectations. The bearish view we have been maintaining needs a review. Present momentum suggests a move towards 3,445-50 Malaysian ringgit (MYR/tonne). This could be significant resistance to overcome. Further resistance is at 3,510 MYR/tonne. The soyabean oil complex displays more bullish strength. Once above 59.50 cents, it is possible even to revisit 63-65 cents on the upside. Good support will now be seen at 3,310 MYR/tonne. As mentioned in the previous update a rise above 3,380 MYR/tonne negated our bearish view for 3,025 MYR/tonne. If not for the bullishness in soya complex, palm could still aim for lower levels. Now, as long as 3,252 MYR/tonne holds attempts to decline, there is good chance for the rally to stretch higher towards 3,500 MYR/tonne levels.

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 could still be a wave “C” expecting to end near 3,025 MYR/tonne. We will review our counts in the next update. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still 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, initially, and, then, correct lower.

Supports are at MYR 3,310, 3,274 and 3,145. Resistances are at MYR 3,445, 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.)

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