Palm oil futures have been the major driver within the global oilseed markets, although the market is showing signs of fatigue in recent trade, which could be viewed as a concern for oilseed trade ahead. As seen on the March 2017 chart for Malaysian palm oil, price has advanced 45.3% from the July 13 low to the Dec. 16/19 double top formed, which reflected the highest trade since May 2012. Daily commentary provided by Dow Jones flip-flops on a regular basis from fears of weak production tied to the 2016 La Nina event to concerns of weak demand, with a focus on a sharp reduction in India's imports.
Needless to say, there has been a mix of both bullish and bearish technical signals in recent weeks. First the bullish indicators. There was a bullish gap higher on Nov. 11, Nov. 21, Nov. 24, Dec. 27 and Jan. 3. Bearish gaps lower are also seen on Nov. 14, Dec. 8, Dec. 9 and Dec. 23, as buyers and sellers fight for control. The contract reached a double top on Dec. 16 and Dec. 19 at 3,202 ringgits/mt, while finishing sharply lower on the 19th after testing the previous day's high. Jan. 5 trade points to a bearish outside-day trading bar, significantly engulfing the previous day's trading range. At the same time, Thursday's close ended below the contract's 20-day moving average (red line).
The upward-sloping blue line represents a neckline for what could be a head and shoulders pattern. The market rallied to highs on Dec. 6 and 7, while retreating only to reach higher-highs on Dec. 16 and 19. On each of these two days, this move stalled at 3,202 ringgits, the local currency, to reach a double top which was followed by closes near the lower-end of the day's trading range as noncommercial selling pressure determined the direction of the market. The market then retreated to a Dec. 23 low, only to stall in moves higher on Dec. 28 and Jan. 3, which forms the right shoulder of the pattern.
A breach of the neckline could signal a reversal in this market. A move below this support line could suggest a further move lower, normally estimated by a move which is equal to the vertical distance from the neckline to the top of the head of the pattern. This would suggest a move of 197 ringgits lower, to 2,837 ringgits, which reflects an 11.4% drop from the December high. This would also result in a move below the 33% retracement of the move from the July low to the December high, which could trigger further selling.
As seen in the second study, short-term momentum has turned lower while the market has struggled to sustain bullish momentum since early December.
The lower study shows weakening spreads since the beginning of the month, a bearish sign of commercial selling.
Cliff Jamieson can be reached at firstname.lastname@example.org
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