Malaysian palm oil futures on the Bursa Malaysia Derivatives ended higher on Monday, as prices reached a one-week high on short-covering amid cautious optimism, as weak demand continued to weigh on market sentiment.

CPO active month October futures are moving in line with our expectations. As mentioned earlier, the Fibonacci retracement point at MYR 2,220-22/tonne is the final support holding prices from falling further lower. It did briefly close below that level. But, since then it has recovered smartly from those levels. As illustrated earlier, a possible head-and-shoulder pattern has been confirmed on a break below 2,475, which is quite a bearish sign. Resistances are at 2,317-20 followed by important resistance at 2,375-80 levels.

Only an unexpected fall below MYR 2,200/tonne could aim for 2,088-90 levels on the downside before finding good support from there. This is our favoured expectation.

Only a direct rise above 2,400 on a closing basis could hint at resumption of the uptrend, which could potentially stretch to test 2,600 levels, or even higher, which does not look likely. What looks more likely is that prices could get capped in the above mentioned resistances and then edge lower again.

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 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 2,900, which could bring this current impulse to an end. The medium- to long-term expectation that we have been having is slowly materialising and we will watch for any signs of a possible impulse wave in the making. Any dips could prove to be opportunity to participate in the upcoming uptrend.

However, the picture could turn weak below 2,200 levels. RSI is in the neutral zone now indicating that it is neither oversold nor overbought. As mentioned in the earlier updates, the averages in MACD have gone below the zero line of the indicator hinting at a bearish reversal in trend. Only a crossover again above the zero line could hint at a bullish reversal in trend.

Therefore, look for palm oil futures to test the resistance levels and then decline again.

Supports are at MYR 2,245, 2,200 and 2,088. Resistances are at MYR 2,315, 2,380 and 2,415.

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

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