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Malaysian palm oil futures on BMD were lower on Friday, to a new seven-week low, as palm exports slow down amid output increases.
Recent cargo surveyor data recorded zero to little growth in export demand for Malaysian palm oil shipments between April 1 and April 25 from a month ago. Poor performing rival vegetable oils, bearish local sentiment driven by rising output, and weak export demand kept prices pressured throughout the week.
Improving weather conditions are expected to reduce the impact of the crop-damaging El Nino, which brings scorching heat across South-East Asia. CPO active month July futures moved lower as expected. As mentioned earlier, prices are looking vulnerable for a drop as the failure to hold support at 2,610-20 MYR/tonne could push prices even lower towards 2,570, which is a potential target for this correction to end.
Prices have hit the target at 2,570 levels, but still haven’t shown enough strength to pull back higher from there. We still view this correction as a healthy one within a larger bullish trend. Only an unexpected decline below 2,550 levels could cause doubts on our overall bullish view.
Such a fall, though not expected, could see prices drifting lower again towards 2,508 MYR/tonne, followed by 2,460-65 levels where strong supports are noted again. Despite this price correction, the overall trend remains neutral to bullish, with a good chance of prices moving back towards 2,800 levels.
Our favoured view expects prices to hold support in the 2,550-70 range and then gradually edge higher towards 2,650-75 levels where it run into strong resistances going forward.
We will now reassess the wave counts, as prices have crossed over above 2,370-2,400 MYR/tonnes. A possible new impulse looks to have started again.
One of our targets at 1,850 was met. The current move could push higher towards 2,645 initially and then could correct lower in a corrective pattern towards 2,310 or even lower to 2,250, and then subsequently rise towards a medium to long-term target at 2,900, which could bring this current impulse to an end.
Any dip could prove to be an opportunity to participate in the upcoming uptrend. RSI is in neutral zone now, indicating it is neither overbought nor oversold.
As mentioned earlier, averages in MACD have gone below the zero line of the indicator hinting at a bearish reversal in trend. But, the crossover tends to happen in a correction and again, a bullish crossover can materialise. Therefore, look for palm oil futures to test the support levels and then rise higher again.
Supports are at MYR 2,570; 2,545; and 2,465. Resistances are at MYR 2,630; 2,675; and 2,720.
The Writer is the Director of Commtrendz Research.There is risk of loss in trading.
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