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Malaysian palm oil futures extended gains on Friday, on strengthening crude oil prices and firm demand boosting prices further after the market hit record highs. Supply worries from South America and rising demand from Asia will continue to underpin prices going into 2008. The weather and the demand are keeping prices buoyant. Floods in the plantation areas also boosted prices. Oil rose for a fifth day to near $97 a barrel on Friday, within sight of its record high after US crude stocks fell more sharply than expected, and geopolitical tensions mounted in Pakistan and northern Iraq. Markets awaited December palm oil export estimates to be released by cargo surveyors on Monday for further direction.

CPO active contract rallied sharply higher against our short-term expectations. However, it has moved higher in line with our big picture expectations nearing our target area at 3300 Malaysian ringgit (MYR) a tonne. As mentioned in our previous update, in the bigger picture, as long as the long-term trend line point at 2700 MYR/tonne holds we believe this up trend should continue for a rise towards 3300 MYR/tonne levels eventually. Negative divergences still persist cautioning against aggressive longs. We still believe a good corrective fall can be expected post this rally with target near 2625 MYR/tonne. Near-term potential also exist for a quick rise towards 3500 MYR/tonne and then sharp retreat lower from there, which we do not favour. In any case, it is better to maintain caution and not get carried away by market forces. A new impulse began from 1427 MYR/tonne as per the recent wave counts. We could still be in the fifth wave impulse and not an end as mentioned in the previous update. We can expect a corrective A-B-C to begin now targeting 2700 levels or worst-case 2400 MYR/tonne. RSI is in the overbought zone indicating a correction to take place. The averages in MACD are above the zero line in the indicator indicating bullishness to be intact. Therefore, look for palm oil futures to test the resistance levels and then correct lower subsequently.

Supports are at MYR 3075, 3010 and 2945. Resistances are at MYR 3155, 3260 and 3320.

Gnanasekar .T

(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.)

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