The Hindu Business Line : NY cotton may consolidate

NYCE cotton futures ended firmer Thursday as speculative short-covering lifted prices off their lows in pre-holiday dealings. Export sales figures released by USDA were seen neutral to bullish and underpinned fibre contracts.

Fibre contracts are stuck in a narrow range ahead of Christmas holidays. Though fundamental outlook for cotton is dominated by record crops in the US and in other countries like China, heavier fibre demand is seen helping to absorb the large amounts of cotton being harvested around the world. This is clearly visible from the USDA weekly export sales data released till now.

As mentioned before market participants will have to contend with a record US and world cotton output as estimated by the USDA earlier this month. 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 unable to push higher above the near-term resistance levels. Failure to cross the resistance at 45 cents decisively has cast doubt on a recovery in the near-term. A daily close above 46 cents will confirm a short-term rise towards 49-50 cents 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 41-42 cents levels. As mentioned in our previous update, a corrective pullback can be expected towards 45 cents levels and resistance will be strong at this level. Crucial support is at 41cents a low made on 2002.

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 50 cents 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 on dips.

Current prices are below the short-term average of 8-day EMA at 43.20 cents and the 34-day EMA is at 43.67 cents. Look for prices to consolidate and head higher. Supports at 42.65, 41.80 and 41 cents. Resistances at 43.50, 44.78 and 45.25 cents respectively.

(The author is associated with the Multi Commodity Exchange of India. 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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