The Hindu Business Line : Downward tweak in cotton

NYCE cotton futures finished lower on Friday on speculative selling as the fibre contracts continued to move in a narrow range waiting for direction. Markets will now look towards the US Department of Agriculture's demand/supply report due on November 12 for any clear direction from here.

Cotton market participants would also like to see the impact of the US Presidential elections on the dollar which could affect US cotton exports. A record US cotton crop and large crops in other countries are, keeping futures on the defensive. The harvest of the US crop is expected to be in full swing in November and this should pressure prices lower. The weekly sales report also came in the lower end of market expectations being one of the reasons for yesterday's fall. USDA said US net upland cotton sales hit 72,500 running bales (RBs, 500-lbs each), much below market expectations compared to last week's 191,900 RBs. It also said US cotton shipments of previously booked orders hit 105,400 RBs, from 103,800 RBs last week.

The active December contract is stuck in a broad range between 44c and 49c. A daily close below 44c on the downside now has the potential to test 42.50c or even lower. However, if prices break the 49c level on the up side then we can expect it to test the psychological resistance at 50c followed by crucial resistance at 51.75-52 cents. The potential to rally higher from here looks very unlikely as the bigger picture still looks bearish. Preferred view is to look for prices to head lower.

As we have been maintaining, 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 57.35c. 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 57.59c will confirm that we have begun a new impulse. This is also close to the 200-day EMA level watched by traders closely. RSI is back in the neutral zone indicating that it is neither overbought nor oversold.

The averages, in MACD have gone below the zero line in the indicator suggesting bearishness. Only a crossover of the averages above the zero line in the indicator will suggest a bullish reversal now. Current prices are below the short-term average of the 8-day EMA at 46.01c and the 34-day EMA is at 47.19 cents. Look for prices to consolidate and head lower. Supports, at 44.50, 43.25 & 42.50. Resistances at 45.80, 46.20 & 47.35 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 of MCX. 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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