The Hindu Business Line : Cotton futures to move up

NYCE cotton futures closed lower on Friday, on speculative sales amid thin volumes as market participants waited on the sidelines for USDA supply/demand report due next week.

Cotton futures recovered from recent lows on higher than expected export figures released by USDA this week. Fundamentally, cotton has been weighed down by near ideal growing weather in the US and in other growing countries. Expectations of a bumper cotton crop in the US and other growing countries have likely been factored into the cotton market.

Weekly exports figures from the USDA came in at the higher end of market expectations. USDA said combined US net upland sales stood at 300,600 running bales (RBs, 500-lbs each), higher than market expectations. Shipments stood at 242,800 RBs. The final sales figures for the marketing year will be released by the USDA next week.

The active December contract moved in line with our expectations. Prices have made a temporary bottom at 44c as per our expectations. Resistance is now at 46.50c and a daily close above this level has the potential to extend higher to 49.25c. Only a strong move above 49.50c will add some bullishness to cotton futures. This will probably end the bearish cycle for cotton and a possible recovery can be seen from there. However, a move below 44.50c again will negate our bullish outlook and prices could potentially move to 38c levels from there.

Elliot wave analysis points towards a complex corrective structure currently underway. The A-B-C correction begun from the high of 82.95c and therefore believe that wave "C" has possibly ended at 44c. As mentioned in the earlier update we are possibly in the last leg of decline. RSI is now in the neutral zone indicating that it is neither overbought nor oversold. It is also showing a positive divergence, where prices are making a lower low which is not confirmed by a new low in the indicator. The averages, in MACD are still below the zero line in the indicator suggesting underlying bearishness.

Only a cross over of the averages above the zero line will confirm a trend reversal. MACD is also showing a positive divergence which is an important reason for our up ward bias. Current prices are below the short- term average of the 8-day EMA at 45.46c and the 34-day EMA is at 48.70 cents. Look for prices to retrace higher. Resistances, at 46, 46.50 & 48.50c. Supports, at 45.25, 44.75 & 43 cents 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. He can be reached at gnanasekar_thiagarajan@yahoo.com)

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