Technical Analysis

Palm oil futures will test support, rise

Gnanasekaar T | Updated on January 09, 2018

Malaysian palm oil futures ended higher on the Bursa Malaysia Derivatives to their strongest in a month and a half, tracking gains in soya on the Chicago Board of Trade.

A stronger export outlook and weaker-than-expected production growth were other factors supporting the positive sentiment. Expectations of robust demand and slowing production growth are expected to underpin prices going forward.

CPO active-month January futures are moving perfectly on expected lines. As we have been maintaining, the bigger picture continues to display bullish tendencies and we still expect prices to eventually rise. As mentioned earlier, though a further upside from MYR 2,825/tonne doesn’t look likely in the immediate future, the broader picture is conducive for a rise to 2,905 or even higher to 3,045-50.

Signs of mild exhaustion are noticeable, and this could see prices correcting lower to MYR 2,795-2,800 levels, from where the uptrend could resume again. Stronger supports are at 2,745-50. Only a fall and close below 2,670 could hint at weakness again targeting 2,610-15, from where it could once again start a fresh upward move.

As illustrated earlier, despite the corrective declines from time to time, the bullish trend still remains intact. The present slide from the recent highs looks like a corrective decline within a rising trend. Dips to 2,795 followed by 2,750 are expected to hold support in the coming week.

The favoured view expects that while prices hold above the 2,605-10 range, they could eventually inch higher towards the targets mentioned above in the coming sessions.

Wave counts: A possible new impulse looks to have started again. One of our targets at MYR 1,850/tonne 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 2,425 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.

But, a short-term fall below MYR 2,800 levels now has caused doubts on our overall bullish expectations. The present upward move from 2,425 looks impulsive with potential targets around 2,945-50, while 2,585 holds. The equality target for the present vertical move lies around the 3,120-25 level.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are above the zero line of the indicator hinting at bullishness being intact. Only a crossover below the zero line could hint at bearishness again.

Therefore, look for palm oil futures to test support levels and then rise in the coming sessions.

Supports are at MYR 2,795, 2,745 and 2,700. Resistances are at MYR 2,880, 2,905 and 3,015.

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

Published on October 30, 2017

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