Malaysian palm oil futures ended slightly lower on Monday, despite climbing over 1 per cent to a six-week high in early trade on Monday, buoyed by overnight strength in US soyoil on the Chicago Board of Trade.

CPO active month August contract pulled are edging higher as expected. After prices broke the near-term trend line resistance at 2,450-55 MYR/tonne, prices are now inclined to test 2,510 followed by 2,568-70 . However, prices could see a phase of consolidation and range bound moves before rising higher again. Though the underlying long-term trend still remains bearish, the near-term picture has turned friendly. We can expect prices to retrace higher, but it is too early to change the medium to long term view to bullish again. Only a break below 2,350 , could now see prices accelerate towards 2,310-15 being the next support. And only a close below 2,310 could see further declines to 2,185-2,255 zone too, from where a strong rebound or a possible bottom is likely subsequently.

Favoured view in the bigger picture expects that while upticks to 2,510 or even higher to 2,565caps, we can expect more downside towards 2,310 or even lower to 2,275 . As we have been maintaining, we are still of the view that that the underlying bigger trend continuing to be bearish, any upticks or unexpected rallies higher could be short-lived and prices could decline subsequently. However, a close above 2,510 could revive bullish hopes for the short-term or even higher, but subsequently we still favour a decline.

We will now reassess the wave counts, as prices have crossed over above 2,370-2,400 . 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 2,425 or even lower to 2,225 , and then subsequently rise towards a medium to long-term target at 3,600 , which could bring this current impulse to an end.

The medium to long-term bullish expectations have been dented on a fall below 2,655 . This makes us believe that the highs at 3,105 was an end off an impulse and the targets are near 2,200 or even lower where the equality target is expected to be tested. Only a close above 2,640 could alter the wave counts again, which is not our favoured scenario now. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator hinting at bearishness to be intact. Only a crossover again above the zero line could hint at a bullish reversal again.

Therefore, look for palm oil futures to test the resistance levels.

Supports are at MYR, 2,435, 2,405 & 2,375 Resistances are at MYR 2,475, 2,510 & 2,565.

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

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