Palm oil may test resistance, fall

Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended lower on Friday as commodity markets across the board fell on prospects of a global economic slowdown eroding commodity demand growth. The fall in CPO futures have been relatively muted compared to the soya complex as a weakening ringgit is considered supportive for palm oil exporters. Markets are also looking out for announcements from India, the world's top palm oil buyer, on whether it will raise import tariff values to insulate the domestic refining industry after number one producer Indonesia cut export taxes on processed palm oil. Markets are also hopeful that the palm demand could pick up in the coming weeks ahead of India's Diwali festival in late October and China's Golden Week holiday early next month given the recent fall in prices.

CPO futures turned bearish once again breaking key supports on the way. As mentioned in the previous update, a decline below 2,980 Malaysian ringgit (MYR) a tonne being a trend line support point could signal weakness. Such a fall could drag prices subsequently lower towards 2,885 MYR/tonne levels. Supports at 3,015 followed by 3,045 MYR/tonne which were broken will tend to resist upside attempts now. Only a direct rise above 3,080 MYR/tonne could once again revive bullish hopes. Failure to rise higher above 3,045 MYR/tonne could drag prices sharply lower below 2,850 MYR/tonne or even lower in the coming months.

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. A corrective wave “B” has met one potential target near 3,465 MYR/tonne. A wave “C” kind of a decline looks likely with potential to test even 2,600 MYR/tonne in the bigger picture. Fall below 2,960 MYR/tonne has confirmed that the downtrend has begun. RSI is in neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have below the zero line of the indicator again indicating a bearish reversal in trend.

Therefore, look for palm oil futures to test the resistance levels initially and then fall lower subsequently.

Supports are at MYR 2,965, 2,920 and 2,885, Resistances are at MYR 3,015, 3,045 and 3,080.

(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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