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Malaysian palm oil futures on the Bursa Malaysia Derivatives were higher on expectations of lower production and rising exports.
CPO active month March futures are moving perfectly in line with our expectations. As mentioned earlier, in the medium-term picture, there is scope for this uptrend to turn into a very strong one, even targeting MYR 3,200/tonne, a potential medium-term target area.
After hitting 3,200 levels, prices have been in a sideways move for a while 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. Potential target are around 3,350-3,450 in the near-term.
Only an unexpected decline below 3,005 could lead to a stronger correction. Such a fall could see stronger supports around 2,970-75 levels being an important trendline 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 inch higher above 3,200 in the coming sessions and aim for targets mentioned above.
Wave counts: A possible new impulse looks to have started again. One of our targets at MYR 1,850 was met. The rally from there looks very impressive. As mentioned earlier, we expect 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.
RSI is in the neutral zone now indicating that it is neither overbought nor oversold. Divergences in indicators warn of a sharp corrective decline in the coming sessions.
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.
Therefore, look for palm oil futures to consolidate and rise .
Supports are at MYR 3,075, 3,025 and 2,970. Resistances are at MYR 3,175, 3,250 and 3,350.
The writer is the Director of Commtrendz Research There is risk of loss in trading.
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