Palm oil to test support, rise

Malaysian palm oil futures on BMD fell lower for the third consecutive session, falling to their lowest since mid-November, as slowing demand and expectations of higher supplies weighed on the market.

CPO active month May futures finally broke out of the broad range that they have been moving over the past few months and pushed lower against our expectations. As cautioned earlier, unexpected a decline below 2,960 MYR/tonne could lead to a stronger correction. Such a fall could see the next stronger support around 2,810-20 levels, being an important fibonacci retracement level.

Massive volumes over the past three days hint at longs exiting and fresh shorts being added. Failure to surpass the resistances decisively for lack of fresh triggers led to a sell-off.

There are certain important targets that markets will be inclined to test right now. They are 2,770 levels followed by critical support at 2,685-95 zone. Once it finds an intermediate bottom in the range mentioned above, ideally it could pull back towards resistances in the 2,900-25 zone again, or test this level lower, before making a bottom.

Though it looks like the short- to medium-term has turned bearish, the bigger picture still favours bullishness ahead. The key is to closely watch if prices can make a recovery and sustain above 3,000 levels again, which could revive bullish hopes.

Favoured view now expects prices to edge lower initially and eventually find a bottom in the coming sessions.

We will now reassess the wave counts, as prices have crossed 2,370-2,400. 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.

Our medium- to long-term expectation is slowly materialising and the impulse wave is under way. But, a short-term fall below 2,800 levels now has caused doubts on our overall bullish expectations. We will have to closely watch the important resistances 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 now.

Therefore, look for palm oil futures to test supports and rise higher subsequently. Supports are at MYR 2,770, 2,695 & 2,660. Resistances are at MYR 2,910, 2,950 & 2,985.

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

COMMENT NOW