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Malaysian palm oil futures on the Bursa Malaysia Derivatives hit their lowest level in nearly three months on Monday dragged down by losses in Chinese vegetable oils, while a mildly stronger ringgit also weighed on sentiment.
CPO active month August futures are moving in line with our expectations. As mentioned earlier, we still view the downward correction as a healthy one within a larger bullish trend. And despite this price correction which we have been noticing in the last few weeks, the overall trend remains neutral to bullish, with a good chance of prices moving back towards MYR 2,800/tonne levels.
A daily close above 2,580 could open the way from 2,650-75 levels and instil some confidence in the bull camp. However, failure to cross the 2,645-55 zone again could dent the confidence and then prices could hover in a broad range before moving higher again.
Favoured view expects prices to edge lower towards MYR 2,460-65 levels or even lower to 2,445-50 range initially and then resume the uptrend again. Next important resistance is in the MYR 2,575/tonne levels. Only an unexpected rise above 2,675 could hint at resumption of the uptrend, which could potentially test 2,750-75 levels, or even higher.
Wave counts: A possible new impulse looks to have started again. One of our targets at MYR 1,850/tonne was met. The rally from there looks very impressive. The current move could push higher towards 2,645 initially and then it could correct lower 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 materializing 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 have gone below the zero line of the indicator hinting at a bearish reversal in trend. But, the crossover tends to happen in a correction and again a bullish crossover can materialise again. 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 support levels and then rise again.
Supports are at MYR 2,465, 2,440 and 2,385. Resistances are at MYR 2,570, 2,645 and 2,700.
The author is the Director of Commtrendz Research. There is risk of loss in trading.
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