The Hindu Business Line : Consolidation in cotton futures

NYCE cotton futures ended slightly higher on Friday, due to speculative and options related buying as market participants geared up for a long holiday weekend. The cotton futures and options market will be closed Monday for the US Memorial Day. Trading resumes on Tuesday.

Cotton futures took a beating this week as the weekly USDA crop progress report issued on Monday estimated that 75 per cent of the US cotton crop was planted, compared to 60 per cent last week. Markets decided to ignore the steady demand seen in the weekly USDA export sales released on Thursday and concentrated on growing conditions in the US cotton belt and in other producing countries.

USDA said combined old crop and new crop US upland cotton sales hit 243,400 running bales (RBs, 500-lbs each), higher than trade expectations that it would range from 80,000 to 150,000 RBs. Shipments stood at 249,900 RBs. Shipments were adequate for the U.S. cotton industry to reach the USDA target of 13.8 million (480-lb) bales in exports in the 2003-04 marketing year (August/July). USDA, in its May monthly production report, pegged US cotton consumption at 6.3 million bales.

The active July contract has moved against expectations. Expected test of the falling trend line resistance point at 66c did not materialise leaving cotton futures vulnerable for a fall. Support at 62.20c was not pronounced and therefore a break of that level lead to a steep fall. Resistance will be seen at 64.50c now and only a daily close above this level will induce bullish strength again. Good support should be seen at 59c level and failure to hold support here should see it testing the recent low at 56.65c and possibly go further lower towards the falling trend line support point at 53.25c.

Elliot wave counts are showing mixed signs and therefore would prefer to wait and watch in the coming week to make any further directional calls. 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. This was followed by a sharp move lower as wave "C" to 56.65c. RSI is now in the neutral zone indicating that it is neither overbought nor oversold.

The averages, in MACD have once again gone below the zero line in the indicator suggesting bearishness. Will need to see how it behaves in the coming week for further signs of weakness. Current prices are below the short-term average of 8 day EMA at 62.97c and the 34 day EMA is at 62.45c cents. Look for prices to consolidate. Resistances at 62.25, 64.50 & 66c. Supports, at 60.90, 59.40 & 59c respectively.

(The author is associated with the Multi Commodity Exchange of India. 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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