The Hindu Business Line : Cotton futures may move up

NYCE cotton futures finished at a one-month high on Thursday on speculative short-covering from market participants in the year's last trading day. The cotton market was shut on Friday in observance of New Year.

Fibre contracts also derived inspiration from higher-than-expected cotton sales in the USDA's weekly cotton sales report. Total US cotton sales reached 268,400 running bales (RBs, 500-lbs each), versus last week's 222,800 RBs. Though fundamental outlook for cotton is dominated by record crops in the US and in other countries such as 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. Important resistance is at 45c and 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. Elliot wave analysis points towards a complex corrective structure currently underway.

We are in a corrective A-B-C pattern which 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 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. Only a crossover of the averages below the zero line in the indicator will suggest a bearish reversal now.

Positive divergence is noticed in both the indicators which makes us believe that we could see a bullish reversal. So, it is better to be cautiously bearish from current levels and instead look for buying opportunities on dips. Look for prices to consolidate and head higher. Current prices are above the short-term average of 8 day EMA at 43.58c and the 34-day EMA is at 43.77 cents.

Supports, at 43.58, 42.50 & 41.75. Resistances, at 44.80, 45.25 & 46.50 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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