11.06.2018 (Business Line) - Malaysian palm oil futures on the Bursa Malaysia Derivatives ended lower on Monday, but recovered after the MPOB data release. The country’s palm oil stockpiles at the end of May declined 0.5 per cent from the previous month to 2.17 million tonnes (mt), industry regulator Malaysian Palm Oil Board (MPOB) said. Output in Malaysia, the world’s second largest palm oil producer, last month fell 2.1 per cent to 1.53 mt, while exports also dropped 15.65 per cent to 1.29 mt.

CPO active month August contract continues to edge lower. Prices have broken the key support at MYR 2,350/tonne levels. Such a fall could lead prices lower to 2,305-10 where a strong trend line support kicks in. We can expect prices to retrace higher towards 2,380 or even higher towards 2,400-20, which could now cap upside attempts.

As mentioned earlier, it is too early to change the medium- to long-term view to bullish again though prices went close to MYR 2,500/tonne. A fall below 2,310 could see further declines to 2,185-2,255 zone too, from where a strong rebound or a possible bottom is likely subsequently. The favoured view expects that while upticks to 2,400-20 or even higher to 2,450 caps, we can expect more downside towards 2,310 or even lower to 2,275.

For now, we favour resistances around 2,395-2,400 range to cap for a retest of highs around 2,310 or even lower in the coming sessions.

Wave counts: A possible new impulse looks to have started again. One of our targets at MYR 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 to 2,425 or even lower to 2,225 and then subsequently rise towards a medium- to long-term target at 3,600. The medium- to long-term bullish expectations have been dented on a fall below 2,655 levels. Only a close above 2,640 could alter the wave counts again, which is not our favoured scenario now.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are have gone below the zero line of the indicator hinting at bearish reversal. Only a crossover again above the zero line could hint at a bullish reversal.

Therefore, look for palm oil futures to test the support levels. Supports are at MYR 2,345, 2,310 and 2,275. Resistances are at MYR 2,400, 2,450 and 2,510.