Malaysian palm oil futures on Bursa Malaysia Derivatives exchange ended lower after the government announced tax cuts that will only take effect from Jan. 1, as markets had expected a more immediate policy. Malaysia will cut crude palm oil (CPO) export taxes and discontinue a tax free shipment quota from Jan. 1 2013, a government minister said on Friday, as the world's No.2 producer seeks to snatch back market share from top producer Indonesia. As an effect of this, the huge premiums that existed between the future months got adjusted and after a sharp decline during the day, prices erased most of the losses as the spreads were unwounded. Energy prices fell below $115 a barrel on Friday, as an expectation of a further decline in oil consumption and higher supplies offset concerns about potential output disruptions in West Asia.

CPO active month futures fell lower after the expected upward retracement. As mentioned in the previous update, resistances will be strong in the 2,465-2,500 Malaysian ringgit (MYR) a tonne range. As expected prices found good resistance above the 2,500 MYR/tonne zone and have started declining lower again. A bearish bias still persists and therefore we favour a move lower to 2,350/75 MYR/tonne or even lower near 2,125-30 MYR/tonne levels. Only an unexpected rise above 2,650 MYR/tonne could temporarily postpone the bearishness. While resistances in the 2,595-2,630 MYR/tonne caps upside attempts in January futures, we can expect prices to decline lower in the coming sessions to the above mentioned levels.

Presently, the wave counts remain mixed with no clarity at all on long-time direction. As mentioned in the earlier update, we will give up the expectation of an impulse still in progress on a daily close below 2,675 MYR/tonne and such a fall could target 2,400 MYR/tonne at least. A possible wave “C” is now in progress with potential targets in the 2,350-75 MYR/tonne range which has been broken and looks like it could extend to 1,975-95 MYR/tonne also. Ideally, a new impulse could begin from lows near 1,995-2,050 MYR/tonne levels. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are below the zero line of the indicator hinting at bearishness to be intact.

Therefore, look for palm oil futures to test the support levels.

Supports are at MYR 2,425, 2,350 and 2,300. Resistances are at MYR 2,595, 2,630 and 2,675.

(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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