Malaysian palm oil futures on the Bursa Malaysia Derivatives fell to their lowest in almost a week on Monday as expectations of a pick-up in output offset improving export demand. Palm gained over the past three weeks on Malaysian exports, which according to cargo surveyor Intertek Testing Services rose 25.6 per cent between August 1 and 20 versus the same period in July. Tight supplies due to the impact of dry weather linked to an El Nino weather pattern also aided prices. However, the effect of El Nino is now expected to wane as output sees a seasonal pick-up. Palm oil production rose 3.5 percent on-month in July, its strongest levels in eight months as per the latest MPOB report.

CPO active month November futures are moving in line with our expectations. As mentioned earlier, we expected prices to find strong resistance around MYR 2,675-80/tonne levels in the coming sessions. A close above this level could even see prices testing 2,725 levels being another significant resistance followed by 2,765, which could trigger a major bullish trend going forward. The bigger picture has gradually turned friendly and shows bullish tendencies, but the confirmation of a bullish reversal is still not materialised.

Nearer supports are now at MYR 2,485/tonne followed by 2,430 levels. While, supports mentioned above holds well, strong resistance at 2,675-80 levels are expected to tested again in the coming sessions. Only an unexpected decline below 2,370 could postpone the bullishness.

Wave counts: A possible new impulse looks to have started again. One of our targets at 1,850 was met. The rally from there looks very impressive. As mentioned earlier, we expected prices to push higher towards 2,645 initially and then correct lower in a corrective pattern towards 2,460 or even lower to 2,225 and then subsequently rise towards a medium to long-term target at 2,900, which could bring this current impulse to an end. The medium- to long-term expectation, that we have been having, is slowly materialising and we will watch for any signs of a possible impulse wave in the making. Any dips could prove to be opportunity to participate in the upcoming uptrend. However, the picture could turn weak below MYR 2,200/tonne levels.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone above the zero line of the indicator hinting at a bullish reversal in trend. Only a crossover again below the zero line could hint at weakness again.

Therefore, look for palm oil futures to test the supports and rise again.

Supports are at MYR 2,510, 2,470 and 2,425. Resistances are at MYR 2,575, 2,625 and 2,725.

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

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