Malaysian palm oil futures on the Bursa Malaysia Derivatives were lower on Monday after the release of the much awaited MPOB report which came in line with market expectations.

Prices have shed four per cent since hitting a two-year high of 2,793 ringgit last month, tracking weakness in competing vegetable oil markets.

CPO active month June futures are moving perfectly in line with our expectations. As mentioned in the previous update, though, any corrections could see rapid selling pressure, the trend remains strongly bullish and such dips could prove to be short-lived.

Finally, a much needed correction in underway, which is a healthy sign of a market which could scale newer heights in the coming months. Supports are at MYR 2,650 /tonne followed by 2610-20, being a very strong rising trend line support zone. The ideal target for CPO futures in the coming weeks beyond the near-term resistance at 2,800-25, lies near 2,875-95 levels.

Only an unexpected decline below MYR 2,540-50 levels, also being an important trend line support point, could cause doubts on our bullish view. Such a fall though not expected could see prices drifting lower again towards 2,460-65 levels where strong supports are noted again.

The trigger for such a fall will be seen on a close below MYR 2,600/tonne in the coming week, which we do not favour. Our favoured view expects prices to find support mentioned above and the uptrend to resume higher again.

Wave counts: One of our targets at 1,850 was met. The rally from there looks very impressive. The current move could push higher towards MYR 2,645/tonne initially and then it could correct lower in a corrective pattern towards 2,310 or even lower to 2,250 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 exhaustion in the above zone. Any dips could prove to be opportunity to participate in the upcoming uptrend.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold.

As mentioned in the earlier update, the averages in MACD are above the zero line of the indicator hinting a bullish trend to be intact. Only a crossover again below the zero line could hint at a reversal in trend to bearish.

Therefore, look for palm oil futures to test the support levels and then rise again.

Supports are at MYR 2,648, 2,610 and 2,545.

Resistances are at MYR 2,725, 2,785 and 2,850.

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

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