The Hindu Business Line : Cotton futures in for correction

NYCE cotton futures finished slightly lower on Wednesday, on some profit taking in very thin trading ahead of Monday's USDA supply/demand report. Market has been on the sidelines waiting for this crucial report for further direction. As for China, the USDA said the Chinese crop would reach 22 million bales and that consumption would be at 30.2 million, meaning that imports should hit seven million bales.

The Chief Executive of leading US merchant Dunavant Enterprises, Mr William Dunavant Jr, said on Tuesday that he felt the Chinese crop would be at 20.7 million bales and that Chinese imports in 2003-04 would range from eight million to nine million bales. In its weekly export sales report, the USDA said US net upland cotton sales stood at 103,500 running bales (RBs, 500 lbs each), slightly higher than the 89,300 RBs in the previous week's report. Shipments reached 147,300 RBs, versus 175,200 RBs last week.

A weaker dollar will also play an important factor as foreign buyer of US cotton will be encouraged to purchase more taking advantage of the weaker dollar situation.

The active March contract moved in line with expectations. The channel break point at 72.10 cents will be an important level to watch a break of that can take it lower. Initial support will be seen at 73.60 cents, which is a rising trend line point. Major support continues to be at 65 cents and believe this could be a low for sometime and a possible reversal expected form there. A gap is also seen at 71.25 cents when it broke it higher earlier, and these gaps have the tendency to be filled on its way down.

As per Elliot wave analysis, we have probably completed a corrective leg and a new impulse wave is in progress. And as long as 68-70 cents holds well, there is a good possibility for a retest of the highs at 84 cents again. However, by looking at the equality target for the impulse, it looks like the high at 84.80 cents will not be easily broken.

RSI is now in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD have gone above the zero line in the indicator convincingly indicating that the trend could again turn bullish.

Current prices are close to the short- term average of 9- day EMA at 74.36 cents and the 50-day EMA is also at 73.19 cents. Look for prices to initially correct lower and then head higher again. Resistances at, 75.50, 77.55 and 78.35 cents. Supports at 73.60, 72.10 and 69.20 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 price movements and there is risk of loss in trading.)

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