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Malaysian palm oil futures on the Bursa Malaysia Derivatives ended sharply lower on Monday, on concerns over falling demand. Hopes of demand from China for the upcoming Lunar New Year holiday seems to be fading and resulted in loss of confidence.
CPO active month March futures moved perfectly in line with our expectations. As mentioned earlier, close above important resistance at MYR 2,460/tonne, in needed to take prices towards the psychological resistance zone between 2,500 and 2,510 levels or even higher and prices having found support at lower levels could gradually edge higher and test the psychological level at 2,500 or even higher. The benchmark third month contract fell exactly from the 2,500-10 zone.
More declines towards 2,405 followed by 2,385 levels look likely. Though the decline could continue, the trend still remains bullish and our favoured view expects support levels at 2,385 followed by 2,360-65 could still hold and prices could once again attempt to rise higher.
Only an unexpected decline below 2,340 could hint that the expected rise above 2,500-10 might not materialise. Such a decline could open the downside again targeting MYR 2,300-20/tonne levels or even lower.
Favoured view expects a corrective decline to supports mentioned above and then prices to rise higher again. 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.
The current move could push higher towards 2,645 initially and then it could correct lower in a corrective pattern towards 2,310 or even lower to 2,250, and then subsequently rise towards a medium to long-term target at 2,900, which could bring this current impulse to an end.
But, this is clearly a medium to long-term expectation and not to be mistaken for a short-term view. Any dips could prove to be opportunity to participate in the upcoming uptrend. RSI is in the neutral zone now indicating that it is neither overbought nor oversold.
As mentioned in the earlier update, the averages in MACD are above the zero line of the indicator hinting a bullish trend to be intact. Only a crossover again below the zero line could hint at a reversal in trend to bearish.
Therefore, look for palm oil futures to correct lower initially and then move higher again.
Supports are at MYR 2,405, 2,375 and 2,345. Resistances are at MYR 2,455, 2,495 and 2,510.
The writer is the Director of Commtrendz Research. There is risk of loss in trading.
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