31/08/2013 (Hindu Business Line) - Malaysian palm oil futures on Bursa Malaysia Derivatives Exchange eased on Friday as investors booked profits from the week's rally. The rally was fuelled by forecasts of dry weather in the soya-producing US Midwest, although healthy demand and a still-weak ringgit underpinned sentiment. August exports are expected to be higher compared with July, after a 7 per cent rise in the first 25 days.

Cargo surveyor Intertek Testing Services will release the full month's export this weekend and another cargo surveyor, SGS, will release it on Monday. Plans to increase domestic consumption of palm oil in Malaysia, by increasing the blend in biodiesel to 10 per cent from the current 5 per cent, further support the sentiment.

Crude palm oil active month futures are moving perfectly in line with our expectations. As mentioned in the previous update, technical picture has turned friendly and this could potentially open up the upside again towards 2,400-2,420 Malaysian ringgit a tonne (MYR/t) levels, which happens to be the possible target for the present up move.

Also, looking at the bigger picture, there is a good chance that this move could potentially turn into a strong one targeting 2,500 MYR/t levels if it takes out 2,425 MYR/t easily. The move extended even to 2,485 MYR/t, in line with our expectations. Ideally, the decline from there to 2,397 MYR/t looks like a corrective one. Prices have the potential to ease even further to 2,375-80 MYR/t levels, being a gap created earlier in the charts. Currently, strong support is seen at 2,375-80 MYR/t and, while this level holds attempts to dip, a shot at 2,500 MYR/t looks more likely. Only an unexpected fall below 2,335 MYR/t could give bearish hopes again, which we do not favour presently.

The wave counts need to be reviewed once again. Fine tuning of counts is necessary to get the bigger picture forecasts clear. The present decline has met an intermediate wave target at 2,135 MYR/t and the subsequent impulse characteristics of the present move make us believe that it could exhaust near 2,500 MYR/t levels and then a subsequent decline to 2,345-50 MYR/t levels. Further to this decline, a sharp third wave move looks likely for 2,575-2,600 MYR/t in the coming months.

Relative Strength Index 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 hint at bearishness again.

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

Supports are at MYR 2,375, 2,345 and 2,300. Resistances are at MYR 2,440, 2,485 and 2,540.