Malaysian palm oil futures were at their lowest in a month on Monday, due to lower demand as a supply crunch eased and as technical selling weighed on prices. Market supplies were tight in the last few weeks on the back of slower-than-expected output growth and as demand for the Muslim fasting month of Ramadan reduced stockpiles.

Ramadan, which sees worshippers break day-long fasts with communal feasting, is widely celebrated in India, the Middle East and Pakistan. Buyers usually stock up on palm oil a month before Ramadan.

There was no support from trading in related edible oils with the Chicago Board of Trade and China's Dalian Commodity Exchange both closed for public holidays.

CPO active month August futures broke key support levels, dashing any bullish hopes. Prices could pull back towards resistances and it would appear difficult to cross this zone in the near term. We expect minor corrective declines from there. A fall below 2,580 MYR/tonne triggered weakness.

As illustrated in the earlier updates, though, it looks like the short to medium-term has turned bearish, and the bigger picture still favours bullishness ahead.

The big picture still indicates neutral tendencies and a chance of a revival in the bullish trend from critical support points. The current downside seems to suggest a pause around 2,480-85 and a minor recovery from there.

An unexpected rise and close below 2,610 could cause doubts once again on the present bearish trend. A direct fall below 2,485 could force us to abandon any chances of a recovery from there taking it lower to the next critical support at 2,420 or even lower now.

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. 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.

The medium to long-term expectation that we have been having is slowly materialising and an impulse wave is underway. But, a short-term fall below 2,800 now has caused doubts on our overall, bullish expectations.

We will have to closely watch the important resistances in the 2,900-3,000 range for any directional call going forward.

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

Therefore, look for palm oil futures to test the support levels.

Supports are at MYR, 2,485, 2,450 & 2,420. Resistances are at MYR 2,585, 2,610 & 2,670.

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

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