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Malaysian palm oil futures, ended higher on Monday, after five sessions of falls tracking strength in crude oil and US Chicago Board of Trade (CBOT) soyoil futures. The benchmark third month December contract moved as expected. The move to 2,300 MYR/tonne was not accompanied by good volumes and fizzled out.
Prices broke the previous double bottom support at 2,140, but managed to hold on to hose levels again bouncing from 2,137 . Important support is now around there. A break below here could open the downside for 2,110-15, where a long-term rising trend support kicks in.
The bigger picture price structure does not yet confirm a bottom in place. But, a close above 2,300 could reinforce bullish expectations and alter the bearish picture. 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. Though, volumes have been encouraging, they are still nowhere near the August 2015 bottom when prices hit 1,865.
For now, we favour resistance to kick in around 2,210-40 and cap upside attempts. The existing broad consolidation could continue between 2,110-2,240 in the coming sessions.
As per the price structure, a break below 2,110 seems possible with potential targets around 1,870 on the downside. Only a daily close 2,300 could alter the big-picture-view that was gradually changing to bullish after the double bottom formation around 2,140 .
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 2,100 , 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 .
Only a close above 2,350 could alter the wave counts again, which is not our favoured scenario now. RSI is in the neutral zone 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.
Therefore, look for palm oil futures to test resistances and then decline lower again.
Supports are at MYR 2,137, 2,110 and 2,000. Resistances are at MYR 2,195, 2,240 and 2,300.
The writer is the Director of Commtrendz Research. There is risk of loss in trading.
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