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.

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.