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Monday, Mar 18, 2002

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Agri-Biz & Commodities - Cotton

Downward correction in NY cotton

Gnanasekar T.

Cotton futures at the New York cotton exchange settled modestly lower on Friday giving up some gains during the week when prices tested three months high on Thursday as sales and shipments continues to exceed market expectations. Marketing year export target of 10.3 million bales at this rate could easily surpass the targets.

In its weekly export report, the US Department of agriculture said sales totalled 129,200 bales, up 19 per cent from the previous week and shipments reached 269,700 bales. Overall buying was noticed from funds, trade and speculators alike accompanied by good volumes. However, trade were seen selling when market tested highs.

The most recent speculation/hedge report shows that speculators were a net long 22.6 per cent of the open interest as this could be slightly bearish due to the potential for longs to liquidate.

Cotton prices need some concrete news now to push prices further higher like the farm bill.

May contract, continues to head higher cautiously. Prices are now heading in a new channel as seen in the chart with support at 37.15c and resistance seen at 39.80c. Prices have enough support when they head lower.

The current up move has been accompanied by an increase in volumes and open interest which suggest that the current up move has the potential to sustain and head higher.

A look at weekly charts which are medium to long term in nature reveals higher highs and higher lows for the last four weeks in succession which is a good sign of an up trend in progress. Therefore, downside risk remains less at this point in time though some corrections are possible from time to time. RSI is about to enter the overbought zone shortly indicating a possible downside correction in the offing.

A minor divergence is noticed in RSI, which indicates a downward correction in the near term. However, this could only be a correction and corrections are healthy in an up trend. The averages in MACD, have once again gone above the zero line in the indicator showing some positive indications of prices moving higher.

Current prices are above both the short-term average of 9 and 50 day EMA. Look for prices to correct downwards, however it could only be a correction and prices will continue to head higher after that. Important support levels are at, 37.90, 37.35 & 36.70. Resistances, at, 38.80, 39.05 & 40.15 cents.

(The author is a Chennai-based technical analyst who tracks the international commodities futures markets. This analysis is based on historical price movement of the commodity concerned. There is risk of loss in trading.)

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