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Crude palm oil (CPO) futures on the Bursa Malaysia Derivatives ended lower on Monday, ahead of the important industry data on production, output and exports from the official MPOB.
Estimates ahead of the data indicate the drop in output to be much lower than earlier expected, dampening sentiment. Though the weaker ringgit underpinned prices, weakness in the energy markets and soya complex weighed on CPO futures. CPO active month May futures moved as per our expectations.
As mentioned in the previous update, an unexpected decline below MYR 2,245/tonne levels could push prices further lower towards 2,200 levels. Prices are once again looking vulnerable for a drop towards 2,215 levels or even lower in the short-term towards MYR 2,145-55 levels.
This happens to be a critical level for the trend to change to bearish once again from its present undercurrent, which is largely bullish.
Till this support holds in the bigger picture, we will still be hopeful of a rise in the coming sessions. Near-term supports are at MYR 2,235/tonne followed by 2,205-10 levels.
Expect prices to drift initially towards the above mentioned supports.
However, if prices test the crucial support at MYR 2,145-50 and a failure to hold there could result in loss of confidence and the trend once again changing to bearish. Such a fall could revive bearish hopes of a retest of recent lows at MYR 1,900/tonne.
We will have to once again review the wave counts, but will wait for a crossover above 2,400 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 anticipated earlier.
We are now tracking a 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.
RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD have gone above the zero line of the indicator hinting at a bullish reversal again.
Only crossover again below the zero line could hint at a resumption of the bearish trend.
Therefore, look for palm oil futures to test the support levels and move higher.
Supports are at MYR 2,245, 2,205 and 2,145. Resistances are at MYR 2,285, 2,345 and 2,395.
The writer is the Director of Commtrendz Research. There is risk of loss in trading.
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