Palm oil futures test support levels, rise

Malaysian palm oil futures rose on Monday, in line for a third session of gains in four on support from a weaker ringgit and steady crude oil prices.

The benchmark third month October contract has been consolidating after testing recent lows, but unable to break it decisively. As mentioned earlier, any attempts to pullback has not seen any meaningful follow-through higher. It is too early to change the medium to long term view to bullish again, but a possible double bottom formation and other statistical indications point to a possible intermediate bottom that has been made at 2,140 . Prices could consolidate in the region of 2,175-2,220 range and then break higher towards 2,275-80 . The price structure does not yet confirm a bottom in place. But, a close above 2,300 could reinforce bullish expectations. Favoured view in the bigger picture expects that while downticks to 2,175 or even higher to 2,145-50 holds, we can expect more upside in the coming sessions. The charts in CBOT Soyoil looks promising though and looks to have made a bottom. On the back of this, downside could be limited in palm as well. 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. We need to see clear evidence of a bullish reversal accompanied by volumes, which has not been the case yet. For now we favour resistances around 2,220 range followed by 2,275-80 in the coming sessions. In the big picture we still anticipate more declines to 2,100 in the coming months.

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 below the zero line of the indicator hinting at bearish reversal. Only a crossover again above the zero line could hint at a bullish reversal.

Therefore, look for palm oil futures to test the support levels and then rise higher again.

Supports are at MYR, 2,175, 2,145 & 2,110 Resistances are at MYR 2,220, 2,275 & 2,310.

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

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