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Malaysian palm oil futures on BMD ended higher Friday, helped by a weaker ringgit and expectations of rebounding exports. Support also stemmed from hopes of good export offtake that could reduce the ending stocks that is to be announced later this week by the official MPOB.
CPO active month November futures pulled back from recent lows. As mentioned in the previous update, While MYR 1,925-35/tonne holds, we can expect prices to inch further higher towards 2,050-65 levels, where it is expected to find strong resistance. Though prices have bounced from a long-term rising trend line support level, it is difficult to confirm if a bottom has been made.
Prices have been making an effort to stay above the psychological MYR 2,000/tonne mark. But, it has been doing it in small volumes, which makes the current up move a suspect. Failure to cross 2,050-60 accompanied by good volumes could have bearish implications on the price. Break and close below 1,960 could have further bearish implications. The next important levels to watch out for will be at 1,820-25 followed by 1,720.
Only a close above MYR 2,070 could revive any hopes of a bullish turnaround. In the coming week, we expect prices to consolidate with a bearish bias and inch up towards stronger resistances only to correct lower subsequently.
We will have to once again review the wave counts, but will wait for a crossover above MYR 2,400/tonne to do that.
As mentioned earlier, a downtrend again could be confirmed on a close below 2,175 levels. This once again puts the spot light on the MYR 1,700/tonne mark, which we were expecting earlier. We are now tracking the final leg of an impulse in a declining trend with potential targets near 1,850 or even lower to 1,700 levels.
Ideally, the next leg of a larger up move could potentially begin from this area. But a direct rise above 2,500 in huge volumes could indicate a turnaround suggesting a possible move to 2,800 later in the year.
RSI is in still the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator hinting at a bearish trend going forward also. Only a crossover again above the zero line could hint at a resumption of the bearish trend.
Therefore, look for palm oil futures to test the resistance levels and then correct lower. Supports are at MYR 2,020, 1,975 and 1,900. Resistances are at MYR 2,055, 2,075 and 2,130.
The writer is the Director of Commtrendz Research. There is risk of loss in trading.
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