The Hindu Business Line : Cotton futures may consolidate

NYCE cotton futures finished firmer on Wednesday, on speculative buying in a very thin market ahead of a four-day holiday weekend. The movement had been very thin and range-bound last week . Future prices found some support after probable fund selling on Monday, due to higher prices in China overnight and declines on Tuesday in the dollar, which makes US cotton cheaper to buy for traders using foreign currencies.

China, which sparked a furious rally in the market this year, is expected to return and purchase sizable quantities of cotton in the first quarter of 2004. The Chinese, as of the last USDA export sales report last week, have already bought 2.998 million RBs or running bales of cotton from the US, compared to 6,37,900 RBs bought by the Chinese at this time last year, according to USDA figures.

The annual Beltwide Cotton conference during January 5-9, being attended by many major players could provide impetus for cotton along with a possible increase in export activity.

The now active March contract is still consolidating in a range now. No change in view. The channel we identified earlier has been broken at 70.70 cents and a sideways movement is taking place with no clear direction seen. Important resistance will be at 71.95 cents. Prices broke the important support at the Fibonacci 61.8 per cent retracement from 55.65 cents to 84.80 cents at 66.90 cents, but managed to close higher .

An unexpected close below this level will see much deeper correction ahead. Major support is will now be at 65 cents and we believe this could be a low for sometime and a possible reversal expected form there.

As per Elliot wave analysis, we have probably completed a corrective leg, and a new impulse wave rally has begun. However, by looking at the equality target for the impulse, it looks like the high at 84.80 cents will not be easily broken. Also, a break of 65 cents will confirm that the corrective leg still continues.

RSI is now in the neutral zone again indicating that it is neither overbought nor oversold. The averages, in MACD are still below the zero line in the indicator indicating that a trend change has occurred.

Current prices are close to the short-term average of 9-day EMA at 70.05 cents and the 50-day EMA is also at 73.30 cents. Look for prices to consolidate and head higher. Resistances at 71.95, 73.15 & 75 cents. Supports at 70.25, 66.80 and 64.35 cents respectively.

(The author is a trader with Scotiabank and the views expressed by him are his own and not necessarily that of his employer. This analysis is based on the historical prices movements and there is risk of loss in trading.)

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