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Malaysian palm oil futures on the Bursa Malaysia Derivatives Exchange ended lower on Monday, as prices struggled to stay near 18-month highs after production in Malaysia dropped to the lowest since April 2012. Currently, concerns over demand from the world’s top two importers China and India, ample supply of competing oils such as soya oil and sun oil and the narrowing of palm oil’s price advantage over other edible oils, continue to pressure prices.
However, falling inventories in major exporter Malaysia, rising domestic demand in the top producer Indonesia and the threat of lower supply on the likelihood of an El Nino weather event, are seen underpinning prices.
Crude palm oil active month June futures are moving perfectly in line with our expectations. As mentioned in the previous update, a corrective dip to 2,805-10 Malaysian ringgit a tonne levels is expected. However, prices did not hold support here. Next critical support is at 2,710 ringgit levels, followed by stronger support at 2,675.
Uptrend undisturbed
Since the uptrend has remained undisturbed, we are still hopeful prices could scale new highs in the coming weeks. An ideal target now lies at 2,990-95 from where a strong downward correction can be expected.
Only a close below 2,665 could postpone our bullish expectations. Favoured view expects supports to hold and prices to test the potential targets mentioned above.
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 or even lower. The present move resembles a fifth wave move with possible targets near 2,865 with a extreme possibility of even testing 3,075 in the coming months.
RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator hinting at bullishness to be intact. Only a crossover again below the zero line hint at bearishness.
Therefore, look for palm oil futures to test the support levels and then move higher.
Supports are at 2,710; 2,670 and 2,615. Resistances are at 2,810; 2,855 and 2,920.
(The author is the Director of Commtrendz Research. There is risk of loss in trading.)
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