Malaysian palm oil futures on BMD ended sharply higher Monday, as a general change in sentiment and short-covering underpinned prices. Ahead of cargo surveyors' data on Malaysia's Sept. 1-15 palm oil exports due on Tuesday, markets were buoyed by news of haze and weather affecting palm plantations. Many palm plantation areas in dominant Southeast Asia are also currently affected by the annual haze caused by slash and burn forest clearing, which could hinder supplies. A weaker ringgit has also offered limited support for the CPO markets in recent weeks. The ringgit has lost almost 19 percent so far this year, and is emerging Asia's worst performing currency. In related markets, crude oil fell as weaker-than-expected Chinese data weighed on markets, adding to concerns that declining global demand would exacerbate a surplus of crude. But, it did not affect sentiment in the edible oil markets so far.

CPO active month November futures pulled back from recent lows. As mentioned in the previous update, the technical picture is turning gradually friendly now. A close above 2070 MYR/ton levels has revived hopes of a bullish turnaround. Prices have been moving in better volumes compared to earlier weeks. This could mean that a genuine reversal in trend could be underway. Strong resistance can be seen around 2265-75 MYR/ton levels. Potential exist for prices to further stretch towards 2335 MYR/ton levels too, being a significant medium-term resistance level. Any dips to 2165 MYR/ton followed by 2,105 MYR/ton are expected to hold in the coming sessions. Only a close below 2090 MYR/ton levels could postpone the bullishness. Such a move could take prices to next important levels around 2015-20 MYR/ton levels. In the coming week, we expect prices to consolidate with a bullish bias and inch higher towards stronger resistances.

We will have to once again review the wave counts, but will wait for a crossover above 2370-2400 MYR/ton to do that. Till then we will stick to our earlier assessment. As mentioned earlier a downtrend again could be confirmed on a close below 2175 MYR/ton levels. This once again puts the spot light on the 1700 MYR/ton mark, which we were expecting earlier. We are now tracking a final leg of a impulse in a declining trend with potential targets near 1850 MYR/ton or even lower to 1700 MYR/ton levels. Ideally, the next leg of a larger up move could potentially begin from this area. But a direct rise above 2400 MYR/ton in huge volumes could indicate a turnaround suggesting a possible move to 2800 MYR/ton 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 again.

Supports are at MYR 2160, 2110 & 2072 Resistances are at MYR 2265, 2300 & 2335.

Gnanasekaar .T (The author is the Director of Commtrendz Research and there is risk of loss in trading. He can be reached at gnanasekar.t@gmail.com. )

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