The Hindu Business Line : Cotton to rise further

NEW YORK cotton futures ended firmer on Friday on speculative and trade buying as the focus turned to switch trade and market participants got out of spot May before it goes into delivery on April 25. Fundamentally, cotton has bucked large cotton crops to stay above 50 cents, basis the spot month, due to steady purchases by consumers and expectations by the trade of lower cotton plantings from major producers in the 2005-06 season.

The US Department of Agriculture's monthly supply/demand report released earlier in the week was higher as expected. World cotton output was raised to 119.22 million (480-lb) bales from 117.71 million last month and consumption rose to 107.05 million from 106.16 million. On the US side, all the figures were kept unchanged except for output which was increased marginally by the USDA to a record 23.08 million from 23.01 million last month.

Active May contract moved higher after testing the support levels. Prices found support at 51.25c. Important support is at 48.25c 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, and a test of this level again looks likely in the coming week. A daily close below 49.50c can take it to the next important support point at 48.25c. And as long as this level holds support, we can expect cotton futures to rise higher again for a potential target of 56.50c.

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. It is also showing a negative divergence, where prices are making a higher not confirmed by the indicator. 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 above the short-term average of 8-day EMA at 52.56c and the 34-day EMA is at 51.15 cents. Look for cotton futures to rise higher.

Supports are, at 51.25, 49.55 & 48.31c. Resistances, at 53.80, 55 & 56.50 cents respectively.

(The author is associated with the Multi Commodity Exchange of India. The views expressed in this column are his own and not necessarily 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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