TECHNICAL ANALYSIS. Palm oil to test supports, rise

Malaysian palm oil futures on the Bursa Malaysia Derivatives ended marginally lower on Monday helped by a weakening ringgit.

Coming as a minor relief, exports of Malaysian palm oil products for August 1-15 rose 9.8 per cent to 729,834 tonnes from 664,641 tonnes shipped during July 1-15, cargo surveyor Societe Generale de Surveillance said on Monday. However, in top producing Indonesia, palm and lauric oil exports fell 8 per cent in July from a month earlier, an industry body said last week.

CPO active month November futures pulled back from recent lows. As cautioned in the previous update, oversold conditions hint at a pullback towards resistances first before the decline lower in the coming sessions. We saw a sharp pullback from MYR 1,958/tonne levels and the retracement could potentially extend higher while supports remain undisturbed.

However, the Malaysian currency weakness has cushioned the decline in CPO to a great extent way and we anticipate weakness to set in, if the ringgit were to strengthen from its recent highs. This could dent our hopes of a corrective pullback and decline directly below 1,950 levels.

The big picture has turned weaker, but short-term rallies towards 2,100 or even higher to 2,145 are expected, which might not sustain though, and the downtrend is expected to continue subsequently.

We expect the long-term targets near MYR 1,910-20/tonne range to be tested and a possible bottom from there, which happens to be a long-term rising trend line support level.

Only a close above 2,175 levels could revive any hopes of a bullish turnaround. In the coming week, we expect prices to consolidate with a mild bullish bias while staying above MYR 1,985/tonne levels.

We will have to once again review the wave counts, but will wait for a crossover above MYR 2,400/tonne to do that. Till then we will stick to our earlier assessment.

As mentioned earlier, a downtrend again could be confirmed on a close below 2,175 levels. This once again puts the spot light on the MYR 1,700/tonne mark, which we were expecting earlier. We are now tracking the final leg of an impulse in a declining trend with potential targets near 1,850 or even lower to 1,700 levels. Ideally, the next leg of a larger up move could potentially begin from this area. But a direct rise above 2,500 in huge volumes could indicate a turnaround suggesting a possible move to 2,800 later in the year.

RSI is in still the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are below the zero line of the indicator again hinting at a bearish trend going forward. Only a crossover again above the zero line could hint at a resumption of the bearish trend.

Therefore, look for palm oil futures to test the support levels and then move higher.

Supports are at MYR 2,005, 1,950 and 1,920. Resistances are at MYR 2,060, 2,115 and 2,145.

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

COMMENT NOW