Palm oil to test resistance, slip

Malaysian palm oil futures on the Bursa Malaysia Derivatives ended marginally higher on Monday ahead of the official MPOB report due on Thursday. Fitch Ratings, the international rating agency, says that the global crude palm oil price will increase only modestly despite the likely onset of the El Nino weather pattern this year and current unrest in Iraq. Fitch expects the narrowing price spread between palm oil and soyabean oil and the lack of growth in demand for biodiesel in Indonesia to weigh on edible oil prices.

CPO active month September futures are moving perfectly in line with our expectations. As mentioned in the previous update, supports are seen at MYR 2,410-20/tonne levels and we expect prices to hold in the zone for a revival in the uptrend again. Only a move below 2,375 could hint at weakness again, possibly targeting 2,250 on the downside. However, expect prices to find support above 2,400 levels and then gradually break above key resistance at MYR 2,512 targeting 2,700 levels on the upside. The trend looks still weak in the bigger picture but minor gains are likely. Prices could move up towards MYR 2,445-55/tonne levels or even higher to MYR 2,485 while 2,375 holds in the coming week.

As mentioned earlier, prices met an intermediate wave target at 2,135 and corrective decline to 2,345-50 levels, followed by a sharp third wave move to 2,575-2,600 materialised. Price structures suggest a possible third wave move ending at 2,690 and a corrective, fourth wave with targets at 2,450 now. The fifth wave possibly ended at 2,898 and a corrective A-B-C in progress with an equality target at 2,350 levels now.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. It is also indicating a positive divergence, where prices are making lower lows not confirmed by lower lows in the indicator. The averages in MACD are still below the zero line of the indicator hinting at a bearish reversal. Only a crossover again above the zero line could at resumption in the bullish trend.Therefore, look for palm oil futures to move higher initially towards resistances and then fall again.

Supports are at MYR 2,400, 2,375 and 2,300. Resistances are at MYR 2,445, 2,485 and 2,515.

(The author is the Director of Commtrendz Research and also in the advisory panel of Commodity exchanges and corporate houses. The views expressed in this column are his own. This analysis is based on the historical price movements and there is risk of loss in trading)

COMMENT NOW