Malaysian palm oil futures ended higher on Monday tracking their biggest intra-day gain in more than four months. They were buoyed by early losses in the ringgit and lower-than-forecast inventoriesfrom the Malaysian Palm Oil Board.

April end-stocks in Malaysia, the world’s second-largest palm oil producer, dropped 6.4 per cent from the previous month to 2.17 million tonnes. Exports of Malaysian palm oil products for May 1-10 fell 9.3 per cent to 408,568 tonnes from 450,659 tonnes shipped during the same period last month.

CPO active month August contract pulled back quite strongly against our expectations. As mentioned earlier, prices are expected to test MYR 2,420-30/tonne levels, where it could be met with strong resistance. The near-term trend line resistance is at 2,450-55 .

Subsequent resistances are at 2,510 followed by 2,568-70 . Though the underlying long-term trend still remains bearish, the near-term picture has turned friendly. We can expect prices to retrace higher, but it is too early to change the medium- to long-term view to bullish again. Only a break below 2,350, could see prices accelerate towards 2,310-15 being the next support. And only a close below 2,310 could see further declines to 2,185-2,255 too.

The favoured view expects that while upticks to 2,510 or even higher to 2,565 caps, we can expect more downside towards 2,310 or even lower to 2,275 . However, a close above 2,510 could revive bullish hopes for the short-term or even higher, but subsequently we still favour a decline.

Wave counts: A possible new impulse looks to have started again. One of our targets at 1,850 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 towards 2,425 or even lower to 2,225 , and then subsequently rise towards a medium- to long-term target at MYR 3,600, which could bring this current impulse to an end.

The medium- to long-term bullish expectations have been dented on a fall below 2,655 . This makes us believe that the highs at 3,105 was an end off an impulse and the targets are near 2,200 or even lower where the equality target is expected to be tested. Only a close above 2,640 could alter the wave counts again, which is not our favoured scenario now.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below the zero line of the indicator hinting at bearishness to be intact. Only a crossover again above the zero line could hint at a bullish reversal again.

Therefore, look for palm oil futures to test the resistance levels.

Supports are at MYR 2,380, 2,352 and 2,310. Resistances are at MYR 2,455, 2,480 and 2,520.

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

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