Palm oil futures tests support, rises

Malaysian palm oil futures on Monday slid to fresh lows, hitting their weakest in five-and-a-half months, as traders were cautious ahead of official data from the Malaysian Palm Oil Board on Tuesday.

CPO active month February edged lower further breaking key supports and loss of confidence. As cautioned earlier, the momentum is expected to be strong on the sell side that could push prices further. As observed in the previous update, further declines to 2,520 MYR/tonne look likely. The picture still looks mixed with a mild bearish bias in the short-term, but does not show any major change in the big picture, which is still friendly.

As illustrated earlier, despite the corrective declines from time to time, the bullish trend still remains intact. Though it looks like a head and shoulder has been confirmed, such a pattern coming after a recent double bottom has more chances to fail, which is why we are still holding on to a medium-term bullish outlook. The present down move from the recent highs looks like a corrective decline within a rising trend.

Dips to 2,450, followed by 2,415-20, are expected to hold support in the coming week. Favoured view still expects, while prices hold above supports in the broader picture, it could eventually inch higher in the coming sessions. The downside from here looks limited, and in a bearish undertone like the present one, it is easy to get carried away.

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 2,425 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. The present up move from 2,425 looks impulsive with potential targets around 2,945-50 while 2,585 holds.

The equality target for the present up move lies around 3,120-25. RSI is in the oversold zone now indicating that a possible correction is in the offing. A positive divergence failure generally results in a sharper fall, which is what we saw when prices broke 2,560. The averages in MACD have gone below the zero line of the indicator hinting at a bearish reversal. Only a crossover again above the zero line could hint at bearishness again.

Therefore, look for palm oil futures to test support levels and then rise higher in the coming sessions. Supports are at MYR, 2,450, 2,420 & 2,375 Resistances are at MYR 2,520, 2,560 & 2,610.

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

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