The Hindu Business Line : Cotton prices may move up

NYCE cotton futures ended higher on Friday due to speculative and options related buying as cotton futures rebounded after falling to nine month lows this week.

Trade buying supported fibre contracts at its session lows and then speculative buying emerged as the July contract hit its highs. The weekly USDA export sales report also provided some positive sentiment for futures. USDA said combined US upland cotton sales hit 244,400 running bales (RBs, 500-lbs each), from 243,400 RBs in last week's report. Shipments hit 358,200 RBs, against trade belief it would run from 300,000 to 350,000 RBs.

Markets will be watching the pace of buying by China. According to the USDA, China has bought 4.816 million RBs of US upland cotton, well above the 1.708 million RBs the Asian giant had purchased by this time last year. The market also took note of the weekly USDA crop progress report showing 86 per cent of the US cotton crop planted, against 78 per cent the same week last year and the average of 82 per cent. The weekly New York Board of Trade spec/hedge report showed the funds holding a net short position of 30.4 per cent against a net short of 27.9 per cent last week.

The active July contract moved lower and made a nine-month low. A good pullback was seen from there. Initial resistance will be seen at 59.35c followed by crucial resistance at 62c. A double bottom pattern identified at 56c-level has also failed as prices went lower than that during the week. As expected, the futures moved below 56.50c and making a temporary bottom at 55.50c. Only a move above 62c will confirm this possibility. Failure to cross this level will see cotton futures test the important falling trend line support point at 53.20c.

Elliot wave counts are still showing mixed signs and therefore would prefer to wait and watch in the coming week to make any further directional calls. We are in a corrective wave structure now which gets complicated week after week and only after the possible target at 53.20c is met, we could see a clearer picture emerge. RSI is now in the oversold zone indicating that it is oversold and a possible up ward correction in the offing. The averages, in MACD have once again gone below the zero line in the indicator suggesting bearishness. Current prices are below the short- term average of 8-day EMA at 59.35c and the 34-day EMA is at 61.85c cents. Look for prices to correct upwards and then head lower again. Resistances at 59.35, 61 & 62.50c. Supports, at 56.20, 55.50 & 53.20c 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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