The Hindu Business Line : NY cotton likely to test support levels

NEW York cotton futures ended lower on Friday hitting a three-week low on speculative selling, as the market did not pay much attention to the much-awaited USDA crop report on demand/supply. Cotton futures continued to lose ground on option-related sales, but trade buying lifted the market from the lows. The USDA upped its estimate of world cotton production in 2005/06 to 109.79 million (480-lb) bales from 108.60 million estimated last month. World consumption was at 112.02 million bales from 111.76 and ending stocks to 49.81 million from 48.95 million bales.

The USDA also, raised its US cotton exports to 15 million from 14.5 million and increased ending stocks to 7.0 million versus 6.7 million bales. The US Department of Agriculture's weekly export sales report showed solid figures for the beginning of the 2005/06 marketing year. The USDA said the US cotton sales were at 2,80,500 running bales (RBs, 500-lbs each), above the previous week's total of 1,80,800 RBs.

The active December contract headed lower towards the support levels. Daily close below important support at 51.24c being the 200-day ema level looks bearish for cotton futures.

Immediate trend line support is now at 48.10c and a failure to hold support here can take it even lower to 46.40c another crucial long-term trend line support point. Favoured view is to look for support levels to hold and rise higher.

Elliot wave analysis points to a corrective A-B-C pattern, ending at 41.71c and a new impulse in progress. The second wave of that impulse looks to have ended at 46.10c. We could possibly be in the third wave of the impulse presently.

A daily close below 46c will negate this possibility. RSI is in the oversold zone indicating a pullback to take place. The averages, in MACD are below the zero line in the indicator suggesting bearishness.

Only a crossover of the averages above the zero line in the indicator again will trigger a bullish reversal.

Current prices are below the short-term average of 8-day EMA at 50.62c and the 34-day EMA is at 51.66 cents. Therefore, look for cotton futures to test the support levels and then pullback higher subsequently. Supports are, at 51.25, 50.65 & 49.10c. Resistances, at 52.72, 53.85 & 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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