SINGAPORE: Palm oil may test a support at 3,877 ringgit per tonne next quarter, a break below which could cause a fall to 3,492 ringgit.
The steep rise from the June low of 3,251 ringgit may have been driven by a wave 5, the final wave of a giant three-wave cycle from the 2008 low of 1,331 ringgit.
This is considered as a failed fifth wave, as it ended around the peak of the wave 3. Such a wave structure signals an exhaustion of the bull trend from the May 2020 low of 1,939 ringgit.
Indeed, the deep wave 4 was the early warning that the uptrend had lost its momentum.
The wave 5 represented the final effort of bulls to push the price up.
Bulls failed twice to break the resistance at 4,499 ringgit, which serves as a limit over the next few months or years. The contract may have started to fall towards the bottom of the wave 4 at 3,251 ringgit.
Palm oil has briefly pierced below the immediate support at 4,141 ringgit. It is highly likely to overcome this barrier and drop to 3,877 ringgit first.
A break above 4,499 ringgit, which looks unlikely, may lead to a gain into the range of 4,884-5,121 ringgit. On the daily chart, a head-and-shoulders has been confirmed, which basically wipes out a chance of a rise above 4,560 ringgit.
This is a top pattern, suggesting a target around 3,800 ringgit. Once the contract drops to this level, a lower target of 3,559 ringgit will be confirmed, as well as a break below 3,941 ringgit, the 23.6% retracement.
Based on this retracement analysis, the contract may fall into the lower range of 2,940-3,250 ringgit.
A break above 4,177 ringgit may lead to a gain to 4,377 ringgit. Only a further gain above 4,377 ringgit could suggest the extension of the uptrend.
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