Palm oil will test resistance, dip

Malaysian palm oil futures on the Bursa Malaysia Derivatives ended at a 1-month high on Monday, tracking gains in the soya complex.

Exports of Malaysian palm oil products for August 1-15 rose 31.6 per cent to 750,942 tonnes from 570,631 tonnes shipped between July 1-15, cargo surveyor Societe Generale de Surveillance said.

CPO active month October futures are moving in line with our expectations. As mentioned earlier, the present up move looks like a possible retracement with targets now stretching to MYR 2,490-95/tonne levels.

And as illustrated in the previous update, the present rally has scope to rise to 2,495-2,500 levels, or even towards 2,545-50 levels, being a falling trend line resistance level.

Prices rose much higher than expected. Since, it has broken key resistances in good volumes, any dips to 2,510 being a trend line support line, followed by 2,475 levels, could well be supported strongly.

We expect prices to find strong resistance around 2,675-80 levels in the coming sessions. A close above this level could even see prices testing 2,725 levels, another significant resistance.

While, the supports mentioned above hold well, strong resistance at MYR 2,675-80 levels are expected to be tested in the coming sessions.

Only an unexpected decline below 2,440 could postpone the bullishness.

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 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 a possible impulse wave in the making. Any dips could prove to be an opportunity to participate in the upcoming uptrend.

However, the picture could turn weak below MYR 2,200/tonne levels. RSI is in the overbought zone now, indicating that a possible downward correction is in the offing.

The averages in MACD have gone above the zero line of the indicator hinting at a bullish reversal in trend. Only a crossover below the zero line could hint at weakness.

Therefore, look for palm oil futures to test the resistance levels and then correct lower again.

Supports are at MYR 2,550, 2,510 and 2,475. Resistances are at MYR 2,677, 2,725 and 2,745.

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

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