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Malaysian palm oil futures ended higher on Monday, helped by bargain-hunting after prices fell following weak export demand and losses in Soy complex. Malaysia resumed export taxes on crude palm oil in May, after suspending it for four months at the start of the year to increase demand and boost prices. It announced a 5 percent tax rate for the month of July. Exports of palm oil and related products from the world's second largest producer declined 12.5 percent from June 1-25, reported inspection company AmSpec Agri Malaysia on Monday, versus the corresponding period in May.
CPO active month September contract pulled back higher. Prices have bounced off intermediate supports, but it appears more like a retracement and not a sign of a clear bottom yet. Prices still do not show any major signs of support or reversal yet. We can expect prices to retrace higher towards 2,305-2,310 MYR/tonne or even higher towards 2,360 , which could now cap upside attempts. As mentioned earlier, it is too early to change the medium to long term view to bullish again though prices went close to 2,500 MYR. Fall below 2,240 MYR could see further declines to 2,185-2,255 MYR too, from where a strong rebound or a possible bottom is likely. Favoured view in the bigger picture expects upticks to 2,350-2,360 MYR or even higher to 2,380 MYR caps, we can expect more downside breaking 2,240 MYR levels triggering the next sharp decline..
Wave counts
We are still of the view that with the underlying bigger trend continuing to be bearish, any upticks or unexpected rallies could be short-lived and prices could decline subsequently. However, a close above 2510 MYR levels could revive bullish hopes for the short-term , but subsequently we still favour a decline. For now we favour resistances around 2,310 MYR range to cap for a retest of lows around 2,240 MYR or even lower in the coming sessions.
On the wave counts, as prices have crossed 2,370-2,400 MYR O,ne of our targets at 1,850 MYR was met. The rally from there looks very impressive.We expected prices to push higher towards 2,645 MYR initially and then correct lower towards 2,425 MYR or even 2,225 MYR, and then rise towards a medium to long-term target at 3,600 MYR, 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 MYR. This makes us believe that the highs at 3,105 MYR was an end of an impulse and the targets are near 2,200 MYR levels or lower where the equality target is expected to be tested. Only a close above 2,640 MYR/t levels could alter the wave counts but that is not our favoured scenario. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD have gone below the zero line of the indicator hinting at a 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 resistance levels and then decline again. Supports are at MYR 2,245, 2,225 and 2,185. Resistances at MYR 2,305, 2,360 and 2,420.
The author is the Director of Commtrendz Research and there is risk of loss in trading.
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