SINGAPORE: Palm oil may drop toward 2,723 ringgit per tonne in the fourth quarter, as it has more or less broken a support at 3,584 ringgit.
The current deep fall from 7,229 ringgit was due to both the completion of a five-wave cycle from 1,939 ringgit and a bigger three-wave cycle from 1,331 ringgit.
A retracement analysis on the uptrend from 1,331 ringgit reveals a key support at 3,584 ringgit which seems to have been broken under the second attack by bears.
Based on the consolidation range from 3,584 ringgit to 4,280 ringgit, the contract may extend its loss to 2,723 ringgit.
In case that the contract closes above 3,584 ringgit by end of September, the target of 2,723 ringgit has to be aborted. The reason is that a wave 5 may have failed, which means it could have ended around the bottom of the wave 3.
Another scenario is that an irregular flat pattern has been developing.
These bullish scenarios are not very favoured at the moment, because the wave 4 from the July low of 3,489 ringgit could hardly extend.
It is expected to roughly match the wave 2 that ended at the May high of 6,698 ringgit.
A closer look at the daily chart reveals a target zone of 2,596-2,786 ringgit, which is pointed by a falling trendline. The wave 5 is travelling towards it.
It is generally very challenging to predict the ending point of a wave five.
However, readings on both daily and weekly chart suggest a further fall towards 2,700 ringgit. Resistance is at 3,900 ringgit, a break above which may lead to a gain to 4,588 ringgit.