Malaysian palm oil futures on the Bursa Malaysia Derivatives ended higher on Monday, on declining output and higher soya oil prices. Output in Malaysia, the world’s second largest palm producer after Indonesia, is affected by the lagging effects of last year’s crop-damaging El Nino.

CPO active month January futures moved perfectly in line with our expectations. As illustrated earlier, the bigger picture has gradually turned friendly and shows bullish tendencies, and now, we are seeing adequate confirmation of a bullish reversal that has materialised. The medium- to long-term picture also continues to exhibit bullish tendencies. Strong supports are now seen at MYR 2,750-65/tonne range and while supports hold, prices are expected to edge higher towards important near-term resistance at 2,935-45 levels or even higher in the coming sessions. A good downward correction is expected around 2,945-50 zone, failing which the rally could get wings to take out the psychological resistance at MYR 3,000 levels.

In the medium-term picture, there is scope for this uptrend to turn into a very strong one even targeting 3,120-3,200 levels. But, this could happen only after some corrective declines. Unexpected decline below 2,675 could postpone the bullishness. Favoured view expects a strong rally higher and any corrective dips to find supports mentioned above.

Wave counts: One of our targets at MYR 1,850/tonne 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 3,125, which could bring this current impulse to an end. The medium- to long-term expectation, that we have been having is slowly materialising and the impulse wave is under way. We have maintained for several weeks now that any dips could prove to be opportunity to participate in the upcoming uptrend. However, the picture could turn weak if prices unexpectedly went below MYR 2,400/tonne levels now.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are 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 again.

Therefore, look for palm oil futures to test the resistance levels.

Supports are at MYR 2,770, 2,720 and 2685. Resistances are at MYR 2,920, 2,945 and 3,120.

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

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