Palm oil may test support, rise

Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended lower on Friday on an unexpectedly higher-than-expected forecast of supplies by the USDA. Also rains in Argentina provided temporary relief to the drought-stressed crops.

The US Department of Agriculture January crop report was seen lower but ending stocks rose sharply, while the Malaysian Palm Oil Board said this week that December stock levels were higher than expected.

While the bearish USDA report sent the markets lower, weather concerns could continue to provide support for oilseed prices. Cargo surveyors Intertek Testing Services and Societe Generale de Surveillance reported a 14 and 19 per cent drop in Malaysia's palm oil exports for first 10 days in January.

CPO futures are moved lower against our expectations. As mentioned in the previous update, hopes of a retest of the recent highs look likely and a rise towards resistances at 3,225/30 Malaysian ringgit (MYR) a tonne levels was seen.

We saw 3,240 MYR/tonne being tested and met with strong resistance. Initial support is now at 3,135-40 MYR/tonne levels. Failure to hold support here has the potential to drag prices lower to even 3,075 MYR/tonne being a rising trend line support point as seen in the chart.

We still favour declines to 3,135-40 MYR/tonne or even lower to 3,075 MYR/tonne to hold for a push higher towards 3,275 MYR/tonne initially followed by our preferred target at 3,350 MYR/tonne.

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 ended at 2,755 MYR/tonne itself.

A possible new impulse has begun now with immediate targets in the 3,350-65 MYR/tonne range. RSI is in the neutral zone now indicating that it is neither overbought nor oversold.

The averages in MACD are above the zero line of the indicator indicating a bullish reversal. Only a cross-over below the zero line again could hint at resumption in bearish trend.

Therefore, look for palm oil futures to test the supports and then rise higher again.

Supports are at MYR 3,130, 3,100 and 3,075. Resistances are at MYR 3,185, 3,225 and 3,275.

(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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