Palm to test resistance, slip

Malaysian palm oil futures on the Bursa Malaysia Derivatives hit a four-month low on Monday due to a strong ringgit. The Malaysian ringgit rose to 3.2050 per dollar on Monday, making it more expensive for overseas buyers. Demand has been fading after the early enthusiasm of Ramzan.

Shipments of Malaysian palm oil products during May 1-25 rose 14 per cent from a month ago to 1.09 million tonnes, cargo surveyor ITS estimated. CPO active month August futures fell lower as expected.

As mentioned in the previous update, we were expecting prices to continue the downtrend and go below MYR 2,500/tonne levels. Prices have moved exactly as anticipated.

Prices have broken below MYR 2,500 and tested initial support at 2,485/90, which seems to be holding for the moment. As cautioned in the earlier update, we believe this to be a strong support level and the likelihood of a retracement higher. A close above MYR 2,540/tonne could cause doubts in our bearish view. Such a rise above MYR 2,540 could see a mild bounce to 2,575-80 levels in the short-term.

In the bigger picture, we still expect prices to fall again back below MYR 2,485/tonne targeting MYR 2,455 or even lower to MYR 2,425-30 levels.

Direct fall below MYR 2,482 could see prices falling to above mentioned supports without the expected retracement to MYR 2,575/80 levels.

As mentioned earlier, prices met an intermediate wave target at MYR 2,135/tonne 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 and a corrective, fourth wave with targets at MYR 2,450 or even lower.

The fifth wave possibly ended at MYR 2,898 and a corrective A-B-C in progress with an equality target at MYR 2,454 levels now.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are 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 test the resistance levels initially and then decline again.Supports are at MYR 2,500, 2,485 and 2,430. Resistances are at MYR 2,535, 2,565 and 2,600.

(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. )

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