Malaysian palm oil futures fell on Monday, after rebounding from the multi-month lows made last Friday and recording its biggest daily gains in nearly five months. Seasonally falling output and upcoming Chinese new year demand is expected to put a floor to prices in the coming weeks. But, exports have been benign so far and that has dented the sentiment of the market badly.

CPO active month March edged lower after a smart pull-back in the previous session. As mentioned earlier, the picture still looks mixed with a mild bearish bias in the short-term, but still does not show any major change in the big picture which is still friendly.

The upward retracement from MYR 2,420/tonne to MYR 2,560/tonne has been impressive with decent volumes, making us believe a possible intermediate bottom is in place. However, it needs to clear the near-term resistance at 2,560 levels. Such a rise could see prices edging higher towards 2,635-50 levels where stronger resistances kick in.

Dips to 2,485-90 is expected to hold supports in the coming week.

The favoured view still expects while prices hold above supports in the broader picture, it could eventually inch higher in the coming sessions. The downside from here looks limited.

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 to 2,425 or 2,225, and then subsequently rise towards a medium- to long-term target at 3,600. The present up move from 2,425 levels looks impulsive with potential targets around 2,945-50, while 2,585 holds.

The equality target for the present up move lies around MYR 3,120-25/tonne. But a fall below 2,530 has changed the counts and we will review it in the next update.

RSI is in the oversold zone now indicating that a possible correction is in the offing. A positive divergence failure generally results in a sharper fall, which is what we have saw when prices broke 2,560 levels.

The averages in MACD have gone below the zero line of the indicator hinting at a bearish reversal. Only a crossover again above the zero line could hint at bearishness again. Therefore, look for palm oil futures to test support levels and then rise.

Supports are at MYR 2,490, 2,460 and 2,375. Resistances are at MYR 2,560, 2,650 and 2,695.

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

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