Palm oil futures to test support levels, rise

Malaysian palm oil futures slid for the third consecutive day as sentiment turned bearish over expectations of rising production and end-stock levels. Malaysian palm oil output is seen rising to a two-year peak in October, lifting inventories to their highest since January 2016.

CPO active month January futures moved as expected. We continue to maintain that the bigger picture continues to display bullish tendencies and we still expect prices to eventually rise higher. As mentioned earlier, the broader picture is conducive for an upmove to MYR 2,905/tonne or even higher to 3,045-50 .

As cautioned earlier, mild exhaustion signs are noticed that could see prices correcting to 2,745-50 , from where the uptrend could resume again. Stronger supports are at 2,730-35, a long-term rising trend line support level. Only a fall and close below 2,670 could hint at weakness again targeting 2,610-15, from where it could once again start a fresh up move.

As illustrated earlier, despite the corrective declines from time to time, the bullish trend still remains intact. The present down move from the recent highs looks like a corrective decline within a rising trend. Dips to 2,745-50 followed by 2,735-40 are expected to hold support in the coming week. The favoured view still is that while prices hold above the 2,605-10 range in the broader picture, it could eventually inch higher towards targets mentioned above in the coming sessions.

Wave counts: 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 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 cast doubts on our overall bullish expectations. The present upmove from 2,425 looks impulsive with potential targets around 2,945-50 while 2,585 holds. The equality target for the present upmove lies around 3,120-25 .

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 that the bullishness is intact. Only a crossover again below the zero line could suggest bearishness.

Therefore, look for palm oil futures to test support levels and then rise in the coming sessions.

Supports are at MYR 2,750, 2,735 and 2,700. Resistances are at MYR 2,845, 2,905 and 3,015.

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

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