The Hindu Business Line : Cotton futures may move up

New York cotton futures settled higher on Thursday ahead of the Easter holiday break, as the markets waited anxiously for the next week's government plantings report. Fibre contracts fell back on speculative fund sales and automatic sell orders kicked in when the May contract fell below 50 cents during the week. Prices, however, recovered as bullish fundamentals prevailed.

Fundamentally, cotton futures will eventually move higher due to strong demand and lower plantings in the upcoming 2005-06 season from countries such as the US. Higher crude prices are also seen boosting cotton prices, as the price of synthetic fibres go up, the main competitor of cotton. A positive backdrop was provided by the US Department of Agriculture's weekly export sales report. USDA said cotton sales hit 207,100 running bales (RBs, 500-lbs each), going beyond trade expectations.

Active May contract found support and rose higher as per our expectations. Cotton futures have been steadily moving higher without any correction past five weeks. Prices found support at 49.55c being the fibonnaci 38.2 per cent retracement level for the move from 41.71-54.20c. This also happens to be the 200-day EMA average point, a barometer watched by momentum based funds for signs of trend reversals. Important resistance will be seen at 55c.

Elliot wave analysis points to a corrective A-B-C pattern, ending at 41.71c and a new impulse in progress. However, only a daily close above 55c will confirm this eventuality. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD are still above the zero line in the indicator suggesting underlying bullishness. Only a crossover of the averages below the zero line in the indicator will suggest a bearish reversal now. Current prices are below the short-term average of 8 day EMA at 51.42c and the 34-day EMA is at 49.78 cents. Look for prices to head higher and test the resistance levels.

Supports are, at 50.60, 49.55 & 48.31c. Resistances, at 52.15, 53.80 & 55 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 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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