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Malaysian crude palm oil futures ended sharply higher hitting a fresh nine-year high due to higher soya oil prices and firm exports.

The palm oil market has gained more than 25 per cent this year after surging 40 per cent in 2006 on the back of fund buying, demand from the bio-diesel and food sectors.

CPO active August contract continues to rise sharply higher without any meaningful correction.

In one of our updates in 2006, we had indicated a possibility of CPO testing 2,600 Malaysian ringgit (MYR) tonne, also an Elliot wave target and we have come close so fast!

Any rally without a meaningful correction has to be dealt with utmost restraint. As mentioned earlier, the indicators are in extremely overbought conditions warning of a corrective fall.

Most technical targets have been met and profit-taking could set in anytime. A gap at 2450 MYR/tonne could be filled and a daily close below 2370 MYR/tonne will confirm a bigger correction to unfold in the coming months.

A new impulse began from 1427 MYR/tonne as per the recent wave counts. We are in the fifth wave move of that impulse.

We can expect a corrective A-B-C to take place in the coming weeks. RSI is in the overbought zone and has started showing negative divergences indicating a possible top in the offing. The averages in MACD are still above the zero line in the indicator suggesting bullishness to be intact. Therefore look for palm oil futures to test the resistance levels and then correct lower sharply.

Supports are at 2450, 2378 and 2240 MYR. Resistances are at 2525, 2578 and 2607 MYR.

(The author is the Director of Commtrendz Research and also in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of MCX. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

Gnanasekar. T

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