The Hindu Business Line : Cotton prices may fall

NYCE cotton futures ended mixed on Thursday on low volumes ahead of a long weekend. Data from USDA on supply/demand and export sales was mostly ignored in spite of a positive undertone to it.

The weekly USDA sales report showed combined US net upland cotton sales of 431,500 running bales (RBs, 500-lbs each), from 207,300 RBs last week and above trade expectations between 200,000 and 300,000 RBs. Shipments soared to a marketing year high of 441,400 RBs, against 395,900 RBs last week.

China was again the leading buyer and shipper of US cotton at 110,400 RBs and 172,700 RBs, respectively. So far, USDA said the Chinese have bought 4.58 million RBs of U.S. upland cotton, versus 1.68 million at this time last year. Separately, the USDA's monthly supply/demand report was virtually unchanged.

World cotton ending stocks were cut to 31.61 million from 31.73 million. US cotton output, exports and ending stocks were unchanged. Cotton prices are down near seven-month lows, still under pressure from last week's USDA forecast showing a larger-than-expected amount of cotton plantings for the upcoming crop.

The active May contract, is consolidating with a break on the lower side expected. 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. Prices are making lower tops and lower bottoms a sign of down trend in progress. 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 we could be in wave C currently 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 62.50c and the 34 day EMA is at 65.45 cents. Look for prices to head lower after a minor correction. Resistances at, 63.20, 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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