Malaysian palm oil futures on BMD fell over 4 per cent on Monday to post their biggest intra-day drop in over four months, retreating from a four-year high in the previous session as they tracked weaker-performing rival oils on other exchanges.

CPO active month January futures are moving perfectly in line with our expectations. As mentioned earlier, favoured view expected a minor consolidation in the 2,700-2,800 MYR/tonne range followed by a strong rally higher again.

We also anticipated a good downward correction after a test of 2,945-50 zone, failing which the rally could get wings to take out the psychological resistance at 3,000 levels also. Prices moved exactly as per the previous update's expectations.

In the medium-term picture there is scope for this uptrend to turn into a very strong one even targeting 3,120-3,200 levels, a potential medium-term target area. But, a strong downward correction is expected now with supports at 2,785 followed by stronger support at 2,680-85 levels.

Unexpected decline below 2,635 could postpone the bullishness. Such a fall could see stronger supports around 2,530 levels being tested, also a very important medium-term support level, which could potentially turn the picture bearish. But, this is not our favoured view. Favoured view expects prices to inch higher again towards 2,945-50 levels in the coming sessions while supports mentioned above hold.

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.

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 3,125, 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 for several weeks now that any dips could prove to be opportunity to participate in the upcoming uptrend. However, the picture could turn weak if prices unexpectedly went below 2,400 MYR/ton levels now.

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

Therefore, look for palm oil futures to test the support levels and rise again.

Supports are at MYR, 2,795, 2,745 & 2,675 Resistances are at MYR 2,900, 2,950 & 3,045.

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

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