Malaysian palm oil futures climbed to their highest levels in two weeks on Monday, rising higher for a fifth straight day of gains on strong soyoil and forecasts of weaker output.

CPO active month May futures pulled back higher from recent lows in line with our expectations. As mentioned before, there are certain important targets that markets will be inclined to test right now.

The first one, at 2,770 MYR/tonne, has not been able to hold. This will be followed by critical support at 2,685-95. Once, it finds an intermediate bottom in the above range, ideally it could pull back towards resistances in the 2,900-25 zone again.

We favoured a corrective upward move to 2,925, which is presently underway. Though, it looks like the short to medium-term has turned bearish, the bigger picture still favours bullishness ahead. Any dips to 2,800-10 are expected to hold supports now.

The key is to closely watch if prices can make a recovery and sustain above 3,000 again, which could revive bullish hopes.

The favoured view now expects prices to edge lower initially to 2,800-10 and then push higher again towards 2,950. There is an outside chance for this pullback to extend to 3,010, but it is still not clear if it can hold on to the gains and rise.

Wave counts

We will now reassess the wave counts, as prices have crossed above 2,370-2400. 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.

But, a short-term fall below 2,800 now has caused doubts on our overall bullish expectations. We will have to closely watch the important resistance points in the 2,900-3,000 range for any directional call going forward.

RSI is in the oversold zone now indicating that an upward correction is in the offing.

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

Therefore, look for palm oil futures to test supports and rise higher subsequently.

Supports are at MYR, 2,810, 2,765 & 2,650 Resistances are at MYR 2,945, 2,980 & 3,010.

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

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