Malaysian palm oil futures ended lower on Monday after India raised import taxes on the tropical oil last week, while a mildly stronger ringgit also weighed on prices.
CPO active month May contract moved against our expectations. Though positive indications were emerging it was still uncertain to confirm it. As we have been maintaining, volatile moves have been seen so far, but we are still hopeful of a recovery higher. But the decisive downtick on Friday has opened the scope for more downside in the coming weeks.
The trend, which was beginning to turn favourably higher, did an U-turn on Friday and in big volumes that mostly squeezed all the longs out. Near-term supports are at MYR 2,435/tonne followed by 2,420 . Failure to hold support here could take prices lower to 2,185-2,255 from where it can rebound subsequently.
Any upticks to 2,510-15 could cap upside attempts now. Intermediate supports could be seen at 2,360-70 from where some retracement can be expected in the coming sessions.
The favoured view now expects that while 2,550 caps the upside, we can expect more downside to 2,420 , and a close below here could open the downside to levels mentioned above.
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 towards 2,425 or even lower to 2,225 , and then subsequently rise towards a medium- to long-term target at 3,600 . The present up move from 2,425 looks impulsive with potential targets around 2,945-50 while 2,585 holds. The equality target for the present up move lies around 3,120-25 .
But a fall below 2,530 has changed the counts and we will review it in the next update. 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 support levels in the coming sessions. Supports are at MYR 2,420, 2,350 and 2,255. Resistances are at MYR 2,515, 2,550 and 2,620.
The writer is the Director of Commtrendz Research. There is risk of loss in trading.