29/06/2017 (The Edge Markets) - SINGAPORE (June 29): Palm oil may fall into a range of RM2,179-2,223 per tonne over the next three months, as suggested by its wave pattern and a Fibonacci ratio analysis.

The downtrend from the Dec 16, 2016 high of RM3,202 seems to have adopted a zigzag mode, which comprises three waves. So far, only two have completed.

The third wave labelled c is unfolding towards RM1,936, its 100% Fibonacci projection level. However, this target looks too far away. A more realistic target could be RM2,223.

A Fibonacci retracement analysis on the uptrend from the Aug 25, 2015 low of RM1,863 to RM3,202 reveals a similar target at RM2,179, the 76.4% level.

The uptrend has a three-wave structure as well. The second wave labelled b ended at the July 12, 2016 low of RM2,186, which is supposed to be approached, according to wave theory.

The contract has broken below a trendline rising from RM1,863. The break confirms a reversal of the uptrend. A rise from the current level will be regarded as the second pullback towards the trendline. This pullback may be limited to RM2,533.

A study on the long-term chart back to 2001 suggests that palm oil is still consolidating within a huge triangle.

Five waves make up the pattern. The fifth wave labelled E is travelling towards RM2,150, its 50% Fibonacci projection level.

A break above RM2,533, may lead to a gain to RM2,688.

(Wang Tao is a Reuters market analyst for commodities and energy technicals. The views expressed are his own. No information in this analysis should be considered as being business, financial or legal advice. Each reader should consult his or her own professional or other advisers for business, financial or legal advice regarding the products mentioned in the analyses.)