Palm oil futures test support levels

Malaysian palm oil futures ended sharply lower on Monday, ending at their lowest level in six months, weighed down by higher than expected production and end-stocks data from an industry regulator.

CPO active month June futures edged lower in line with our expectations. We can expect more weakness and any upticks could be short-lived. Resistances around 2,700 MYR/tonne were strong enough to repulse upside attempts as expected. Only, a close above 2,750 could reignite bullish hopes again.

Ideally, prices are expected to hit 2,490-2,510 in the coming sessions. 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 pullback towards resistances in the 2,750 followed by 2,820-25 again.

As illustrated in the earlier updates, though it looks like the short to medium-term has turned bearish, the bigger picture still favours bullishness. The big picture still indicates neutral tendencies and a chance of a revival in the bullish trend from critical support points.

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

We will now reassess the wave counts, as prices have crossed over 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.

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 the 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 going forward.

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

The averages in MACD are below the zero line of the indicator, hinting that the bearishness is still intact.

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

Therefore, look for palm oil futures to test support levels.

Supports are at MYR 2,575, 2,525 & 2,475.

Resistances are at MYR 2,627, 2,680 & 2,745.

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

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