Palm oil futures may test supports, rise

Malaysian palm oil futures on the BMD were marginally lower on Monday, undermined by a stronger ringgit, which makes the physical prices expensive for buyers.

CPO active month April futures are still range bound, waiting for further clues. As mentioned earlier, in the medium-term picture, there is scope for this uptrend to turn into a very strong one even targeting 3,200 MYR/tonne levels, a potential medium-term target area.

After hitting 3,200 levels, prices have been in a sideways move for more than a month now. As mentioned in the previous update, prices could edge lower now in a correction and such corrections are healthy for the uptrend to sustain by squeezing out weak longs. The present sideways move has been accompanied by good volumes at the lower end of the range, suggesting a strong up move once it breaks out of the consolidation in the 3,000-3,200 zone.

The potential target is around 3,350-3,450 in the near-term. Strong supports are seen at 3,050-60 followed by 3,010/20. Only an unexpected decline below 3,005could lead to a stronger correction. Such a fall could see stronger supports around 2,960-75, this being an important trend line support level.

As explained before, a one sided move without price corrections could be vulnerable for a sharp decline subsequently. But the way prices have paused and volumes are rising at the lower end of the range, the favoured view expects prices to break higher above 3,200 in the coming sessions and aim for the targets mentioned above.

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 impressive.

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. We have maintained that any dips could prove to be an opportunity to participate in the upcoming uptrend. However, the picture could turn weak if prices unexpectedly went below 2,800.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator hinting at a bullish reversal in trend. Only a crossover again below the zero line could hint at weakness again.

Therefore, look for palm oil futures to test supports and rise higher subsequently. Supports are at MYR 3,060, 3,025 and 2,970. Resistances are at MYR 3,175, 3,210 and 3,280.

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

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