The Hindu Business Line : Cotton futures may rise

NEW York cotton futures ended mixed on Friday as the focus turned to switch trade and options expiry, as 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. Market participants look forward to the prospects for the new crop especially when the US Department of Agriculture releases its monthly supply/demand report next month. That report will contain the first look by the USDA at supply/demand factors in the 2005/06 marketing year (August/July). A positive backdrop was provided by a weekly government sales report. The US Department of Agriculture said US cotton sales hit 265,400 running bales (RBs 500 lbs each).

Active May contract is stuck in a narrow range now. A range has been established between 49 cents as support and 54 cents as resistance. Important support is at 48.25 cents being the fibonnaci 38.2% retracement level for the move from 41.71-54.20 cents. This also happens to be the 200 day EMA average point. And as long as this level holds support, we can expect cotton futures to rise higher again for a potential target of 56.50 cents. Favoured view is to look for prices to move in the range seen in the chart above for a while and then break-out higher.

Elliot wave analysis points to a corrective A-B-C pattern, ending at 41.71 cents and a new impulse in progress. However, only a daily close above 55 cents 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 52.36 cents and the 34-day EMA is at 51.42 cents. Look for cotton futures to rise higher. Supports are at 51.85, 50.06 and 49.55 cents. Resistances at 52.50, 53.80 and 55 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.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
TDP, Cong clash on Vamsadhara project bid

Coonoor tea auctions Q1 turnover up 46 pc

Mixed trend in Kochi auction

Cotton futures may rise

Cotton turns dull as yarn offtake declines

Nafed procures over 8 lakh tonne mustardseed

Global pepper output may dip as growers shift to other crops

AP farmers' federation meet