Financial Daily from THE HINDU group of publications
Monday, Dec 20, 2004
Financial Daily from THE HINDU group of publications Monday, Dec 20, 2004 |
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Agri-Biz & Commodities
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Technical Analysis Cotton prices seen rising Gnanasekar T.
NYCE cotton futures ended higher on Friday on speculative fund buying despite a bearish impact of the Government report on supply/demand. Markets have started to focus on the demand side of the business now with exports picking up good stream as seen in the last two consecutive USDA weekly export sales data. USDA said US cotton sales this week reached 299,300 running bales (RBs, 500-lbs each), versus 378,100 RBs last week falling in line with market expectations. As mentioned before market participants will have to contend with a record US and world cotton output as pegged by the USDA earlier. USDA raised its estimate for world cotton production to 114.02 million (480-lb) bales from 111.73 million last month, upped world ending stocks to 46.53 million versus 44.55 million bales, and increased the US crop to a record 22.82 million against 22.55 million in its November data. Switch from crude-based synthetic fibre to cotton and expiration of a textile agreement in 2005 is believed to be important factors helping offset record crops in the US and in the world. The active March contract is still trading in a narrow range increasingly showing signs of breaking towards the up side. A daily close above 46c will confirm a short-term rise towards 49-50c on the up side being a long-term falling channel resistance point as seen in the chart above. Support has held till now on the lower side of the range at 41-42c levels. As mentioned in our previous update, a corrective pullback can be expected towards 45c levels and resistance will be strong at this level. Crucial support is at 41c a low made on 2002. The potential to rally higher looked very unlikely as the bigger picture still looks bearish. However, the bigger picture has now started showing signs of reversals as seen in the weekly chart. Therefore, it is advisable to abandon the bearish outlook we have been maintaining till now. Elliot wave analysis points towards a complex corrective structure currently underway. As mentioned earlier, we are in a corrective A-B-C pattern that still looks to be in progress. Only a daily close above 50c 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 are 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. As mentioned in the previous week's update positive divergence is noticed in both the indicators which makes us believe that we could see a reversal. So, it is better to be cautiously bearish from current levels and instead look for buying opportunities. Current prices are below the short-term average of 8 day EMA at 43.24c and the 34-day EMA is at 43.75 cents. Look for prices to head higher. Supports, at 43.50, 42.65 & 41.80. Resistances, at 44.78, 45.25 & 48 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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