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Malaysian palm oil futures on the Bursa Malaysia Derivatives Exchange ended higher on Monday, touching an 18 month-high after production in Malaysia dropped to the lowest since April 2012, eroding stockpiles further. Dry weather curbed palm oil output by 14.25 per cent compared with January. Output could be lower due to the lagged effects of a drought in May to June last year. CPO active month futures are moving perfectly in line with our expectations. As mentioned in the previous update, though prices are showing some exhaustion signs, but still remains strongly poised to make multi-month highs. Prices hit a high of ringgit 2,910/tonne. The rally could extend to 2,935-45 levels immediately. But, from there it could find resistance and correct subsequently. A corrective dip to ringgit 2,805-10levels are expected and this could hold support and once again revisit recent highs or even higher. An ideal target now lies at 2,990-95 from where a strong correction can be expected. Only a close below 2,730 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 ringgit 2,345-50, 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 ringgit 3,075/tonne in the coming months.
RSI is in the highly overbought zone now indicating a possible downward correction in the offing. The averages in MACD have gone above the zero line of the indicator hinting at a bullish reversal. Only a crossover again below the zero line hint at bearishness.Therefore, look for palm oil futures to test the resistance and then decline subsequently. Supports are at MYR 2,875, 2,810, 2,745. Resistances are at MYR 2,940, 2,995 and 3,027.
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