The Hindu Business Line : NY cotton may head higher

NYCE cotton futures finished lower on Friday, on speculative selling as the markets waited for the next market moving news. The next important fundamental report, will be the supply-demand report on September 10 from the USDA. Market pulled back following its recent speculative short-covering rally on fund buying hitting an eight-week high. That will be the second detailed report on the supply-demand equation for cotton in the 2004-05 marketing year (August-July).

As mentioned earlier, the current pullback is considered a technical reversal as the fundamental factors remains bearish due to a large US cotton crop and record world cotton output. Cotton future prices held well in spite of the bearish USDA numbers released last week and did not follow through to hitting new lows as this increase in crop size has already been discounted. USDA supply-demand report projected the second-biggest cotton harvest on record. Weekly USDA export sales report showed net US upland cotton sales for the week ending August 19 reaching 115,600 running bales (of 500 lbs) at the higher end of market expectations.

The active December contract retraced sharply higher in line with our expectations. Prices could not cross the important resistance at 52.50 cents and thus headed towards lower levels to find support. December Futures still has the potential to extend towards the falling trend line resistance point at 56 cents. However, caution should be exercised on getting unduly bullish as the current move is a technical correction and prices could fall back lower again. Bullish reversal can be confirmed only on the break of 57.35 cents. Support should now be seen at 47.50 cents.

Elliot wave analysis points towards a complex corrective structure currently underway. As mentioned earlier, we are in a corrective A-B-C pattern which still looks to be in progress. Only a daily close above 57 cents will confirm that we have begun a new impulse. RSI is back in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD have gone above the zero line in the indicator suggesting bullishness now. However, it needs to be seen if the momentum can sustain in the coming sessions.

Current prices are below the short- term average of 8-day EMA at 49.25 cents and the 34-day EMA is at 48.46 cents. Look for prices to head higher after testing support levels. Resistances at 49, 51.75 and 52.50 cents. Supports at 47.50, 46.48 and 45 cents respectively.

(The author is associated with the Multi Commodity Exchange of India (MCX). The views expressed in this column are his own and not that 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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