Malaysian palm oil futures on BMD were higher on Monday, supported by improved demand and forecasts that stockpiles will drop on falling production, ahead of a data release from the Malaysian Palm Oil Board (MPOB).

Markets are relying on the festive season to drive higher palm oil demand. Celebration of Ramadan, which starts in early June, is a month-long event of fasting and feasting that spurs higher palm oil demand.

Palm oil rose in the last week, posting its sharpest jump in nearly five months on Wednesday as market participants covered short positions after four sessions of losses. CPO active month July futures moved in line with our expectations. As mentioned earlier, we still view the downward correction as a healthy one within a larger bullish trend. And despite this price correction, the overall trend remains neutral to bullish, with a good chance of prices moving back towards 2,800 MYR/tonne levels.

Strong resistance will be seen initially at 2,695-2,700 MYR/tonne levels now. A daily close above 2,700 MYR/tonne could pave the way for 2,775-2,800 MYR/tonne levels. However, failure to cross 2,695-2,700 MYR/tonne levels could dent confidence and then, prices could hover in a broad range before moving higher again.

Favoured view expects prices to hold support in the 2,550-70 MYR/tonne range and then gradually edge higher towards 2,650-75 MYR/tonne levels where it run into strong resistances going forward. Only an unexpected fall below 2,580 MYR/tonne could hint at weakness again, which could potentially test 2,460-65 MYR/tonne levels, which we do not favour.

We will now reassess the wave counts, as prices have crossed over above 2,370-2,400 MYR/tonne. A possible new impulse looks to have started again. One of our targets at 1,850 MYR/tonne was met. The current move could push higher towards 2,645 MYR/tonne initially and then correct lower in a pattern towards 2,310 MYR/tonne, or even lower to 2,250 MYR/tonne, before subsequently rising towards a medium to long-term target at 2,900 MYR/ton, which could bring this current impulse to an end.

Any dips could prove to be opportunity to participate in the upcoming uptrend. RSI is in the neutral zone indicating that it is neither overbought nor oversold.

As mentioned in the earlier update, averages in MACD have gone below the zero line of the indicator, hinting at a bearish reversal in trend. But, crossovers tend to happen in a correction and again a bullish crossover can materialise. Only a crossover above the zero line could hint at a bullish reversal in trend.

Therefore, look for palm oil futures to consolidate and rise higher again. Supports are at MYR 2,620; 2,570; and 2,550 Resistances are at MYR 2,685; 2,720; and 2,760.

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

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