Malaysian palm oil futures on the Bursa Malaysia Derivatives hit their highest level in over four years on Monday, and saw their biggest daily gain in nearly a month, as lower output and stronger rival soya oil aided market sentiment.

CPO active month February futures are moving perfectly in line with our expectations. As mentioned earlier, in the medium-term picture there is scope for this uptrend to turn into a very strong one even targeting MYR 3,120-3,200/tonne levels, a potential medium-term target area.

With prices closing above 3,100 levels, the stage is set for a test of 3,200-250levels in the coming sessions. Intermediate resistance will be at 3,150 levels now. Only an unexpected decline below 3,025-35 could postpone the bullishness. Such a fall could see stronger supports around 2,920-30 levels being tested, a much needed correction, that could help sustain this up trend.

Any dips to 3,045-50 is expected to hold supports in the short-term. Favoured view still expects prices to inch higher towards 3,200 in the coming sessions while supports mentioned above hold and caution should be exercised on getting excessively bullish, as the current price rally could be overdone.

Wave counts: 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.

RSI is in the overbought zone now indicating that a downward correction is in the offing. The averages in MACD are still above the zero line of the indicator hinting at a bullish reversal in trend. Only a crossover again below the zero line could hint at weakness again.

Therefore, look for palm oil futures to test the resistance levels and correct lower.

Supports are at MYR 3,050, 3,015 and 2,960. Resistances are at MYR 3,150, 3,260.

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

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