Malaysian palm oil futures ended sharply lower to reach their weakest level in more than four months, tracking declining fundamentals.

CPO active-month May futures tanked lower after failing to sustain higher.

There are certain important targets that the market will be inclined to test on the upside right now, but it is still not clear if it can hold on to gains and sustain higher.

A break below 2,820 MYR/tonne on the active third-month contract triggered a wave of selling again in CPO futures.

Critical support is at 2,685-95 and failure to hold here could drag prices lower to the next important support, at around 2,490-2,510. This happens to be a long-term rising trend line support level. Once, it finds an intermediate bottom in the above-mentioned range, ideally prices could pull back towards resistances in the 2,895-2,900 zone again.

While it looks like the short to medium-term has turned bearish, the bigger picture still favours bullishness ahead.

The big picture still indicates neutral tendencies and a chance of a revival in the bullish trend from critical support points.

Don’t expect rallies

The short-term momentum has turned clearly bearish and abandon any hopes of upward rallies anytime soon.

Any uptick is expected to find strong resistance around the 2,810-20 level. We will now reassess the wave counts, as prices have crossed 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 2,460 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 expectation that we have been having is slowly materialising and the impulse wave is underway.

But, a short-term fall below 2,800 now has caused doubts on our overall bullish expectations.

We will have to closely watch the important resistance points in the 2,900-3,000 range for any directional call.

RSI is in the neutral zone now, indicating that it is neither oversold nor overbought.

The averages in MACD have gone below the zero line of the indicator, hinting at a bearish reversal in trend.

Only a crossover again above the zero line could hint at a bullish revival now.

Therefore, look for palm oil futures to fall lower and test support levels. Supports are at MYR, 2,685, 2,525 & 2,495. Resistances are at MYR 2,775, 2,820 & 2,900.

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

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