The Hindu Business Line : Cotton futures may decline

NEW York cotton futures ended higher on Friday as the markets completed its position liquidation getting out of spot May before it goes into delivery on April 25. Going forward market participants will now look forward to next month's USDA Supply/demand report for future direction. Weather from here on should be an important factor to monitor and assuming weather is average to normal, we could see cotton future prices come under pressure. 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 weekly export sales report was encouraging for the trade. USDA said US cotton sales amounted to 274,000 running bales (RBs, 500-lbs each), well above market expectations. Active May contract rose higher as anticipated.

Our favoured view over the past month has been a potential test of 56.50 cents which was fulfilled this week. Prices are moving in a rising channel range as seen in the chart above. Strong resistance will be seen here being the past resistance level. Important support is now at 53.75 cents and as long as the rising channel support point at 52.65 cents holds expect cotton futures to march towards its next crucial resistance at 59.85 cents.

Favoured view is to look for a good correction towards 53.65 cents in the coming week before the up trend resumes. Elliot wave analysis points to a corrective A-B-C pattern, ending at 41.71cents and a new impulse in progress.

RSI is in the oversold zone indicating a correction to take place. 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 54.41cents and the 34-day EMA is at 52.32 cents. Look for cotton futures to correct lower initially and then rise higher again.

Supports are at 54.15, 53.65 and 52.42 cents. Resistances at 55.28, 56.20 and 58.75 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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