The Hindu Business Line : Downward tweak in cotton

NYCE cotton futures ended strongly higher on Friday, recovering from seven-month lows on speculative buying and possible profit taking after three straight sessions of decline after cotton future prices plummeted on a surprisingly big USDA planting intentions report.

USDA forecast that US cotton plantings reaching a larger-than-expected 14.402 million acres this year, above trade expectations for 13.5 million acres which is almost seven percent higher than the previous year. The international farm group ICAC also forecast an increase in plantings and a record global cotton crop of 22.2 million tonnes in 2004-05, 10 per cent higher compared to the last year. However, US cotton production is forecast to decrease marginally as farmers will switch to soyabeans which reached highs not seen for a long time on supply concerns.

China is forecast to import 1.65 million tonnes in 2003/04, with purchases declining to 1.35 mt in 2004-05. Production in China will be 4.9 million in 2003-04, but will increase to a record 6.3 mt in 2004-05, it said.

The active May contract fell lower as per expectations. The head and shoulder pattern we have been discussing in our earlier up dates has been decisively broken and can expect a steep fall from here. Important support will be at 60c and a break of that will see futures hitting the target at 56.50c in the near term. This also happens to be the 50 per cent Fibonacci retracement level for the move from 28 to 84.75c.

Using Elliot wave analysis a wave C is in progress now. The move from the peak at 84.25 to 65c is possibly a corrective wave A and the subsequent pullback to 76.20c is a wave B. The current move should be a wave C targeting close to 58c or even lower. RSI is now in the neutral zone indicating that it is neither overbought nor oversold.

The averages, in MACD are still below the zero line in the indicator. Only a break above the zero line will signal a reversal in trend. Positive divergences noticed in both the indicators last week have failed and this is a very bearish indication. Current prices are lower than the short- term average of 8 day EMA at 63.80c and the 34-day EMA is at 66.40 cents. Look for prices to head lower. Resistances at, 63.70, 64.55 & 67.90c. Supports at 61.55, 60 & 58 c respectively.

(The author is associated with the Multi Commodity Exchange of India (MCX). The views expressed in this column are his own and not of his employer. This analysis is based on the historical price movements and there is risk of loss in trading.)

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