Palm oil to test support, rise

Malaysian palm oil futures on the Bursa Malaysia Derivatives ended lower on Monday on profit-taking as prices rose above a 17-month high, while a stronger ringgit further put pressure on prices. Support came from stronger energy markets, which signalled that more of the crude palm oil (CPO) could be snapped up for bio-fuel use. . the edible oil complex.

CPO active month futures are moving perfectly in line with our expectations. As mentioned in the previous update, a daily close above MYR 2,652/tonne could once again open the upside targeting 2,750-60 or even higher. And once above MYR 2,700, prices could grind higher gradually towards MYR 2,745-50 in the coming week.

Our expectations were met and prices inched even higher which is very typical in a rising trend due to overbought conditions and a need for a correction could push prices lower towards MYR 2,685/95 levels in the coming sessions. Our favoured view expects prices to stabilise in the MYR 2,675-85 zone and rally towards MYR 2,860-65 levels with minor resistances in the 2,825 and 2,845 zone. Only a close below MYR 2,670 /tonne could dent our bullish expectations. Favoured view expects supports to hold and prices to test resistance mentioned above.

As mentioned earlier, prices met an intermediate wave target at MYR 2,135 and corrective decline to MYR 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 MYR 2,690/tonne and a corrective, fourth wave with targets at MYR 2,450 or even lower. The present move resembles a fifth wave move with possible targets near MYR 2,865 with a extreme possibility of even testing MYR 3,075 in the coming months.

RSI is in the 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 supports initially and then move up again towards resistances.

Supports are at MYR 2,730, 2,685, 2,645. Resistances are at MYR 2,775, 2,825 and 2,865.

(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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