The Hindu Business Line : NY cotton may rise, then fall

NEW York cotton futures finished slightly lower on Friday, as the trade was cautious ahead of the next approaching hurricane Emily towards the Southern Texas. The storm could sweep into cotton farms in the south of Texas, which are almost ready for harvest. The state is the biggest cotton growing area in the country.

As the harvest season for cotton nears any rallies could find strong resistance. Fundamentally, market players are waiting for crops to mature in the US and in places like China, the world's biggest producer and consumer of cotton.

Cotton futures fell sharply on Tuesday, triggered by the US Department of Agriculture's monthly supply-demand report, which raised world cotton ending stocks in 2005-06 to 48.95 million (480-lb) bales, versus last month's forecast of 44.05 million. Cotton was also hit by news that the USDA trimmed its estimate for imports by China, the world's biggest cotton consumer, to 14.5 million bales in 2005-06, from 15 million last month.

The Active December contract tanked lower breaking key short-term support levels against our expectations. Any pullbacks to 53.50-54 cents level will be well resisted now. Prices are currently finding support at the 200-day EMA level at 51.25 cents. A daily close below this point will have bearish implications. Important support is at 49.15 cents, and a daily close below this level will take prices lower towards 46.40 cents another crucial long-term trend line support point as seen in the chart above.

Huge gaps have been created due to lower price openings and these gaps could be filed in the current week on a retracement.

Elliot wave analysis points to a corrective A-B-C pattern, ending at 41.71 cents and a new impulse in progress. The second wave of that impulse looks to have ended at 46.10 cents. We could possibly be in the third wave of the impulse presently. A daily close below 46 cents will negate this possibility.

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 bullishness to be intact.

Only a crossover of the averages below the zero line in the indicator will suggest bearishness. Current prices are above the short-term average of 8-day EMA at 52.98 cents and the 34-day EMA is at 52.72 cents. Look for cotton futures to pullback higher initially and then head lower.

Supports are at 51.25, 50.65 and 49.10 cents. Resistances at 52.72, 53.85 and 55.25 cents respectively.

(The author is associated with The Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not necessarily that of his employer. This analysis is based on historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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