Palm oil futures may drop

Malaysian palm oil futures on Bursa Malaysia Derivatives Exchange ended higher on Friday to a two-week high on Friday, posting its first weekly gain in of five, as encouraging export data buoyed investor hopes for resilient global demand. Cargo surveyor data showed palm oil shipments in the first 25 days of April rose between 2.7 per cent and 5.2 per cent, fuelled by stronger demand from India, Europe and the US. Bargain hunting interest from India also underpinned sentiment for CPO futures. Healthy exports and near-stagnant production could help cut stockpiles in Malaysia, the world's No. 2 palm producer. The soya complex faces unusually tight near-term supplies, a factor reflected in record cash basis levels also supportive for the edible oil complex.

CPO active July month futures are moving in line with our expectations. As mentioned in the earlier update, our favoured view expected declines to 2,245 Malaysian ringgit (MYR) a tonne levels. Charts are still indicating weakness with potential to retest the 2,210-2,220 MYR/t levels. Once, 2,200 MYR/t gives way, then we could get into more weakness targeting 2,095 MYR/t levels, which we do not favour presently. The 2,200 MYR/t support has been holding from the year 2010 onwards. The earlier support at 2,330-45 MYR/t has now turned into a strong resistance level and we expect prices getting capped here on any recovery. Only a daily close above 2,345 MYR/t could revive hopes of a possible recovery to 2400 MYR/t levels. However, prices are expected to decline lower once again and a sustained upward momentum is unlikely.

The wave counts still remains mixed and prefer for the time being prefer to go with possibility of an end of wave “C” at 2220 MYR/t now. For the present, impulse move once above 2,650 MYR/t, potential exists for the impulse rally to extend to 2,755-2,800 MYR/t range too. A decline below 2,300 MYR/t has dashed all bullish hopes. Ideally, prices could come down towards 2,000 MYR/t or even lower. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator hinting at weakness. Only a crossover above the zero line again could indicate a bullish reversal.

Therefore, look for palm oil futures to test the resistances and then decline again.

Supports are at MYR 2,300, 2,245 and 2,210 Resistances are at MYR 2,345, 2,365 and 2,400.

(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.t@gmail.com.)

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