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Malaysian palm oil futures on the Bursa Malaysia Derivatives ended sharply lower on Monday as other global markets fell lower on concerns about the Chinese economy.
Only a weak Malaysian ringgit, which makes palm cheaper for offshore buyers, offered limited support to palm oil. With no major fundamental data in the offing, the present declining trend is expected to continue in the coming week.
CPO active month November futures pulled back from recent lows. As mentioned in the previous update, after a pullback towards resistances we expected the long-term targets near MYR 1,910-20/tonne range to be tested and a possible bottom from there, which happens to be a long-term rising trend line support level.
Whether a bottom has been made at present levels or not is difficult to say, as the price action does not confirm a bottom yet. Break and close below 1,900-10 could have further bearish implications. The next important levels to watch out for in CPO futures are at 1,820-25 followed by 1,720. Only a close above MYR 2,020/tonne levels could revive any hopes of a bullish turnaround.
In the coming week, we expect prices to continue the bearish trend, while resistances at 1,958 followed by 2,025 levels caps.
We will have to once again review the wave counts, but will wait for a crossover above MYR 2,400/tonne 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 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 oversold zone now indicating that an upward correction is in the offing. The averages in MACD are below the zero line of the indicator again hinting at a bearish trend going forward. 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 support levels.
Supports are at MYR 1,900, 1,825 and 1,750. Resistances are at MYR 1,958, 2,020 and 2,070.
The writer is the Director of Commtrendz Research. There is risk of loss in trading.
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