The Hindu Business Line : High oil prices temper NY cotton

NEW York cotton futures ended marginally lower Friday on profit-taking ahead of the long holiday weekend. The cotton market will be closed Monday for the US Labour Day holiday.

Cotton futures spiked to a three-week peak on Tuesday, on un-certainty about crop damage in Louisiana and Mississippi as well as reports of crop losses in Texas. The upcoming crop report from the Agriculture Department will measure the impact of Hurricane Katrina on the US cotton.

China, the world's largest cotton consumer, may not need quite as much of the commodity as expected if trade rows result in lower textile exports to the US and the European Union.

The US is the largest exporter of cotton to China, with 2004 exports accounting more than half of China's total import of 1.9 million tonnes. According to the ICAC world cotton production would be 24.4 million tonnes in 2005/06, down from a record 26.2 million tonnes in 2004/05. Consumption in 2005/06 will be tempered by high crude oil prices and slowing world economic growth.

The Active December contract rose higher against our expectations. Prices have been finding support at the trend line as seen in the chart above. The important 200-day ema point at 51c is seen as a strong resistance level in the near-term.

A clear direction for cotton futures looks difficult till a move above 53c is seen. Range bound trade can be expected now with important resistance at 51c and support at 47.80c. Break of either side will determine direction in the near-term.

Favoured view is to look for a fall towards 45.95-46c followed by a rise higher from there. 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. A daily close below 46c will negate this possibility and a major downtrend could set in subsequently.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. 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 above the short-term average of 8 day EMA at 49.52c and the 34-day EMA is at 50.18 cents. Therefore, look for cotton futures to consolidate in a range.

Supports are, at 48.25, 47.80 & 45.95c. Resistances, at 50.95, 53 & 55 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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