Malaysian palm oil futures ended lower on Monday, tracking weakness in other markets. Lower exports and higher production expectation weighed on prices.
The benchmark third-month November contract moved lower again failing to capitalise on recent strength, that saw strong resistance kick in around 2,250-60 MYR/tonne. It needs to be seen if prices can sustain and push higher above important resistances. The first one being at 2,265 followed by 2,340-50 being a very strong confluence of resistance levels.
It is too early to change the medium- to long-term view to bullish again, but a possible double bottom formation and other statistical indications point to a possible intermediate bottom that has been made at 2,140. Important support is now at 2,175-80. The bigger picture price structure does not yet confirm a bottom in place. But, a close above 2,300 could reinforce bullish expectations.
The favoured view in the bigger picture still expects that while downticks to 2,175-80 hold, we can expect an upside in coming sessions.
Apparently, volumes have been encouraging, but still nowhere near the August 2015 bottom of 1,865. For now we favour supports around 2,175-80 in the coming sessions.
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 MYR/ton initially and then correct lower in a corrective pattern towards 2,100 MYR/ton, and then subsequently rise towards a medium to long-term target at 3,600, which could bring this current impulse to an end.
Medium to long-term bullish expectations have been dented on a fall below 2,655. This makes us believe that the high at 3,105 was an end off an impulse and the targets are near 2,100 or even lower where the equality target is expected to be tested.
Only a close above 2,350 could alter the wave counts again, which is not our favoured scenario now. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages in the MACD are still below the zero line of the indicator hinting at bearishness to be intact. Only a crossover again above the zero line could hint at a bullish reversal.
Therefore, look for palm oil futures to test support levels and then rise higher again.
Supports are at 2,175, 2,140 and 2,100. Resistances are at MYR 2,260, 2,300 & 2,345.
The writer is the Director of Commtrendz Research.There is a risk of loss in trading.