Malaysian palm oil futures on the Bursa Malaysia Derivatives were lower on Monday, and fell for a sixth straight session as rising output amid slowing demand pressured CPO futures.

Brexit fears and weak economic data from China pushed Asian markets lower, which also rubbed off on the BMD CPO futures.

As mentioned earlier, the present levels at MYR 2,665-75/tonne are a minor resistance followed by stronger resistance around 2,715-20 levels. Ideally, we expect prices to correct lower from the abovementioned resistance points towards 2,625 or even lower to 2,575-80 levels.

Prices have corrected much more than expected. Failure to hold support around MYR 2,550 levels has changed the near-term picture to a bearish one.

Scope exists for prices to test recent lows at 2,475 or even lower at 2,435, being a Fibonacci retracement level.

However, we still view this downward correction as a healthy one within a larger bullish trend. In the bigger picture, we still see a good chance of prices moving back towards MYR 2,800/tonne levels.

Only below 2,420, our long-term bullish view could get threatened. Such a fall could test the next crucial support around 2,325 levels.

The favoured view expects prices to edge lower towards supports mentioned above and then pull back higher from there. Only an unexpected rise above MYR 2,675/tonne on a closing basis could hint at resumption of the uptrend, which could potentially stretch to test 2,790-2,800 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.

As mentioned earlier, we expected prices to push higher towards MYR 2,645 initially and then move lower in a corrective pattern towards 2,460 or even lower to MYR 2,300 and then subsequently rise towards a medium- to long-term target of 2,900, which could bring this current impulse to an end.

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 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.

Supports are at MYR 2,475, 2,435 and 2,395. Resistances are at MYR 2,605, 2,675 and 2,745.

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

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