Malaysian palm oil futures on the Bursa Malaysia Derivatives ended higher on Monday helped by an upbeat data from China. Energy futures are a nine-month high as an insurgency in Iraq intensifies concerns over a potential disruption to supplies.

Oil World says in its latest weekly report that there is a “relatively high probability” that world palm oil supply will tighten in the 2014-15 marketing year due to below-average production growth caused by insufficient moisture and a decline in yield.

CPO active month September futures are moving perfectly in line with our expectations. As mentioned in the previous update, our favoured view expected prices to hold supports and rise higher towards MYR 2,485/tonne initially and then towards 2,550 levels. The 2,550-60 levels is an equality target for the present up move. Dips to 2,455-65 could be holding any attempts to decline.

While above MYR 2,430-35, there is potential for prices to initially move towards 2,510-15 where minor resistance will be seen. Subsequently, prices are expected to further accelerate towards 2,535-55 levels, where it could be met with strong resistance. Only a close above 2,575 could change the bigger picture trend to bullish from the present bearishness.

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 MYR 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. 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 consolidate and rise.

Supports are at MYR 2,455, 2,420 and 2,400. Resistances are at MYR 2,485, 2,515 and 2,550.

(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. He can be reached at gnanasekar.t@gmail.com. )

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