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Malaysian palm oil futures on the Bursa Malaysia Derivatives rose on Monday for a sixth straight session as tight supplies and forecasts for higher prices underpinned sentiment.
CPO active month February futures are moving perfectly in line with our expectations.
As mentioned earlier, in the medium-term picture, there is scope for this uptrend to turn into a very strong one even targeting MYR 3,120-3,200/tonne levels, a potential medium-term target area.
But we expected a strong downward correction, which stalled at 2,815-20 levels itself. Near-term resistance is seen strong at 3,095-3,100 levels on the upside.
Failure to cross this level could have some minor bearish implications. Only an unexpected decline below 2,965-75 could postpone the bullishness.
Such a fall could see stronger supports around 2,920-30 levels being tested, followed by 2,805 levels, also a very important medium-term support level, which could potentially turn the picture neutral to bearish.
The favoured view still expects prices to inch up towards 3,175-85 levels or even higher to 3,200 in the coming sessions while the supports mentioned above hold and caution should be exercised on getting excessively bullish, as the current price rally could be a bit overdone.
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 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 3,600, which could bring this current impulse to an end. The medium- to long-term expectation, that we have been having is slowly materialising and the impulse wave is underway.
RSI is in the overbought zone now, indicating that a downward correction is in the offing. The MACD averages are still above the zero line of the indicator hinting at a bullish reversal in trend.
Only a crossover again below the zero line could hint at fresh weakness.
Therefore, look for palm oil futures to test the resistance levels and correct lower.
Supports are at MYR 3,045, 2,965 and 2,805.
Resistances are at MYR 3,095, 3,150 and 3,200.
The writer is the Director of Commtrendz Research. There is risk of loss in trading.
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