Malaysian palm oil futures on the Bursa Malaysia Derivatives Exchange ended lower on lower prospects for bio-fuel demand as energy prices slipped to a four-year low. Energy prices are near its lowest in almost four years, after key West Asian producers signalled they would keep output high irrespective of falling prices. Mediocre demand and record harvests of both soyabean and oil palm are seen pressuring the edible oil complex currently. Most of the seasonal demand seems to be coming to an end and the onset of winter could further dent demand in the coming weeks. The soya complex firmed slightly after a sharp drop in the previous sessions. The USDA estimated the US soyabean crop would be 17 per cent above the recently revised 2013 crop, but below market expectations.

Crude palm oil (CPO) active month December futures are moving perfectly in line with our expectations. As mentioned in the previous update, prices could now see a consolidation in the MYR 2,135-45 and 2,195-2,200 a tonne range and then breakout higher towards MYR 2,235 or even higher at 2,290/2,300 levels. This is our favoured view. Only a fall below MYR 2,100/tonne levels could cause doubts on our short-term bullish view and such a decline could take prices lower towards next important support at 2,055-65 levels again, which is a critical trend line support below which the trend could again turn bearish. The overall picture still looks supportive for CPO futures to make an attempt to break recent highs at 2,223-25 levels, while prices remain above 2,130-35 levels.

As mentioned earlier, a corrective A-B-C in progress with an equality target now stretching to MYR 2,135/tonne levels or even lower. With the present structures, there is a good chance that we could be in a five wave impulse moving lower with equality targets near 1,700 levels. The current decline has targets near 1,845 levels from where a strong retracement could commence. Despite, a minor retracement, 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 hinting at a bullish reversal. Only a crossover again below the zero line could hint at resumption in the bearish trend.

Therefore, look for palm oil futures to consolidate and test the resistance levels.

Supports are at MYR 2,145, 2,100 and 2,055. Resistances are at MYR 2,198, 2,225 and 2,285.

The author is the Director of Commtrendz Research and there is risk of loss in trading.

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