Malaysian palm oil futures on Bursa Malaysia Derivatives Exchange ended higher on Friday, as a result of seasonal drop in production. Gains, however, were capped by weak demand. There was additional support for the palm oil market from the soya complex, which rose on strong demand for US stocks. The market fell to its lowest in more than two months on Monday amid concerns over weak demand.

Exports of palm oil products during January 1-15 fell 28.1 per cent to 4,60,248 tonnes from 6,40,240 tonnes shipped during December 1-15, cargo surveyor Intertek Testing Services said. Another surveyor SGS reported exports during the period fell 27.4 per cent to 4,67,817 tonnes from 6,44,556 tonnes during the review period.

Crude palm oil active month futures have pulled back from recent lows. We expected a recovery to 2,575-2,595 Malaysian ringgit a tonne (MYR/t) levels initially and then prices to decline again. A decline to 2,485-2,490 MYR/t level was seen, being a neckline point for the inverted head-and-shoulder pattern which resulted in an upward move to 2,690-2,695 MYR/t earlier. Prices have yet to show any conclusive evidence of a reversal and therefore we believe this move to be a minor retracement, subsequent to which the decline should continue lower. Prices found support in the zone and retraced higher. Any pullbacks will find it difficult to cross resistances at 2,575 MYR/t followed by 2,595-2,600 MYR/t. We believe prices could subsequently aim for 2,445-50 MYR/t levels in the short-term from where buying interest could possibly emerge again.

Prices met an intermediate wave target at 2,135 MYR/t and corrective decline to 2,345-50 MYR/t levels, followed by a sharp third wave move to 2,575-2600 MYR/t materialised. Price structures suggest a possible third wave move ending at 2,690 MYR/t and a corrective, fourth wave with targets at 2,450 MYR/t or even lower.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator hinting at a bearish reversal. Only a crossover above the zero line again could again hint at bullishness.Therefore, look for palm oil futures to test the resistances and then decline. Supports are at MYR 2,520, 2,490 and 2,445, Resistances are at MYR 2,575, 2,595 and 2,615.

(The author is the Director of Commtrendz Research and also on the advisory panel of Commodity exchanges and corporate houses. The views expressed are personal. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at >gnanasekar.t@gmail.com )

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