Crude palm oil futures on Bursa Malaysia Derivatives ended slightly higher on Monday, as Indonesia’s plan to impose levies on crude palm exports triggered hasty buying. Indonesian officials are preparing new rules for a charge of $50 on every tonne of crude palm oil (CPO) shipped at a zero export tax rate, with the funds going to help pay for bio-diesel subsidies announced in recent weeks. Though the move could be considered negative in the short-term, it could help the industry from the current supply glut.

CPO active month June futures moved higher in line with our expectations.

As mentioned in the previous update, till the support around MYR (Malaysian ringgit) 2,125-35/tonne holds in the bigger picture, and we will be hopeful of a rise in the coming sessions.

Near-term supports are at 2,145-50 followed by very strong support at 2,125 levels. Break of this level, however, could potentially drag prices lower towards immediate support at 2085-95 levels.

Failure to hold here too could confirm the beginning of a larger downtrend towards 1,900 or even lower. Resistance is now at 2,245-50 levels.

Favoured view expects prices to grind higher gradually initially towards resistances at MYR 2,245-50/tonne levels with a chance of even extending higher towards 2,275/85 levels.

Subsequently, we expect the down move to begin again. Only a close above MYR 2,280 levels could change the bearish picture to neutral.

We will have to once again review the wave counts, but will wait for a crossover above 2,400 to do that. Till then we will stick to our earlier assessment.

As mentioned earlier, a downtrend again could be confirmed on a close below 2,175 levels.

This once again puts the spot light on the MYR 1,700 a tonne mark, which we anticipated earlier. We are now tracking a final leg of a impulse in a declining trend with potential targets near 1,850 or even lower to 1,700 levels.

Ideally, the next leg of a larger up move could potentially begin from this area.

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 again.

Only crossover again above the zero line could hint at a resumption of the bullish trend.

Therefore, look for palm oil futures to test the support levels and move higher again.

Supports are at MYR 2,145, 2,125 and 2,085. Resistances are at MYR 2,210, 2,245 and 2,280.

The writer is the Director of Commtrendz Research. There is risk of loss in trading.

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