25/02/2013 (Hindu Business Line) - Malaysian palm oil futures on the Bursa Malaysia Derivatives exchange ended lower on Friday as sluggish demand continued to be a concern to a market which is already bogged down by huge inventories. Inventory levels, which have hovered above the 2.5-million-tonne mark since October last year, finally edged down in January, but only marginally to 2.58 million tonnes. Seasonally, slowing output in Malaysia, the No. 2 producer of palm oil, is expected to help ease stockpiles in February but exports have been sluggish so far. Global markets too have been in a sluggish mode with doubts over the continuance of the quantitative easing in the US resulting in risk-aversion. Energy prices have also come down sharply on the back of it further pressuring the edible oil complex.

CPO active May month futures are consolidating but waning momentum suggests weakness ahead. Prices have come close to testing our favoured levels near 2,600-20 Malaysia ringgit (MYR) a tonne. As mentioned earlier, looking at the soya oil charts it looks like CPO futures could decline lower from current levels. Immediate support is at 2,520-25 MYR/tonne levels. Below here it could be attracted towards trendline support at 2460-65 MYR/tonne levels. Failure to hold support here could further take it lower towards 2400 MYR/tonne levels from where it could consolidate in a broad range between 2400-2500 MYR/tonne for a while. This is our favoured view. Only an unexpected rise above 2585 MYR/tonne could see prices testing the important resistances at 2620-25 MYR/tonne, which we do not favour presently.

The extended correction to 2,200 MYR/tonne levels materialised in the form of an extended wave “C”. It looks like a possible wave “C” could have ended at 2220 MYR/tonne now. For the present impulse move once above 2650 MYR/tonne, potential exists for the impulse rally to extend to 2755-2800 MYR/tonne range too. Only an unexpected decline below 2,350 MYR/tonne could force us to abandon our bullish view. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD have gone above the zero line of the indicator hinting at a bullish reversal. Only a crossover below the zero line again could indicate a bearish trend.

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

Supports are at MYR 2520, 2465 and 2400 Resistances are at MYR 2580, 2620 and 2650.