Malaysian palm oil futures ended sharply lower on Monday, to an eight-month low in late trade, weighed down by expectations of rising output in the top producers, Malaysia and Indonesia. Palm oil output in South-East Asia is expected to rebound this year, notably from the second half, as fresh fruit bunch yields recover from the crop-damaging effects of a dry El Nino weather pattern. Malaysian production jumped 16.3 per cent month-on-month in March for its first monthly gain since September. Exports of Malaysian palm oil products for April 1-15 rose 15.2 per cent to 567,280 tonnes, from 492,321 tonnes during March 1-15, cargo surveyor Intertek Testing Services said on Saturday.

CPO active month July futures are lower in line with our expectations. As mentioned, more weakness is expected, and any upticks could be short-lived. Resistances around 2,630-50 MYR/tonne levels could be strong. Only a close above 2,720 MYR/tonne could reignite bullish hopes again. Ideally, prices are expected to hit 2,450-60 MYR/tonne in the coming sessions. This happens to be a long-term rising trend line support level.

Once it finds an intermediate bottom in that range, prices could pull back towards resistances in the 2,630 MYR/tonne zone, followed by 2,725 MYR/tonne again. However, it looks like the short-to-medium term has turned bearish. The big picture still indicates neutral tendencies and a chance of a revival in bullish trend from critical support points. The short-term momentum has turned bearish, so abandon hopes of upward rallies any time soon.

We will now reassess the wave counts, as prices have crossed above 2,370-2,400 MYR/tonne. A possible new impulse looks to have started again. One of our targets at 1,850 MYR/tonne was met. The rally from there looks very impressive. We expected prices to push higher towards 2,645 MYR/tonne initially and then correct lower towards 2,460 MYR/tonne or even to 2,225 MYR/tonne, and then rise towards a medium to long-term target at 3,600 MYR/tonne, which could bring this current impulse to an end. The medium to long-term expectation is slowly materialising and the impulse wave is under way.

But a short-term fall below 2,800 MYR/tonne now has cast doubts on our overall bullish expectations. We will have to watch the important resistances in the 2,900-3,000 MYR/tonne range for any directional call going forward. RSI is in the oversold zone now, indicating that an upward correction is in the offing. The averages in MACD are below the zero line of the indicator, hinting that bearishness is still intact. Only a crossover again above the zero line could hint at a bullish revival.

Look for palm oil futures to test the support levels and rise higher again.

Supports are at MYR 2,460, 2,420 and 2,365. Resistances are at MYR 2,620, 2,660 and 2,725.

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

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