The Hindu Business Line : Cotton prices may drift lower

NEW York cotton futures ended lower Friday on profit-taking combined with trade-selling on news of the recent hurricane Rita being lowered to category 3 from category 4.

Earlier in the week, prices hit a two-week high on fears that hurricane Rita would make a landfall in the cotton growing areas of Texas, Louisiana & Mississippi. Barring the hurricane, higher carryover stocks and the current US harvest season are expected to keep prices under pressure.

The size of the crop was illustrated in the recent US Department of Agriculture monthly supply/demand report for September which forecast the 2005/06 US cotton crop at 22.28 million (480-lb) bales against 21.29 million bales estimated in August. The focus now would mostly be on expected cotton demand in the 2005/06 marketing year (August/July) and how much of it would come from China. Failure to resolve the textile dispute with China could aid bearish sentiment further.

The active December contract moved higher in line with our expectations. The rising trend line has been supporting cotton futures as seen in the chart. Resistance will now be seen at 52.40-53 cents. Another test of 48.90-95 cents being the trend line support point looks likely in the coming week. An unexpected break below the trend line support at 48.90 cents could take cotton futures lower to 47.65 cents or even lower.

As mentioned earlier, clear direction for cotton futures looks difficult till a move above 53 cents is seen or a fall below 48 cents. Favoured view is to look for a fall towards 47-47.25 cents followed by a rise higher from there. Elliot wave analysis points to a corrective pattern in progress, ending at 41.71 cents and a new impulse still in progress. The corrective second wave of that impulse looks to have ended at 46.10 cents. A daily close below 46 cents 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 above the zero line in the indicator suggesting bullishness to be intact. Current prices are above the short-term average of 8-day EMA at 51.15 cents and the 34-day EMA is at 50.70 cents. Therefore, look for cotton futures to test the support levels.

Supports are at 48.90, 47.65 & 46.30 cents. Resistances, at 52.50, 53 & 54.43 cents respectively.

(The author is associated with the Multi Commodity Exchange of India (MCX). The views expressed in this column are his own and not necessarily 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.)

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

Stories in this Section
BPCL in talks with NCDEX for futures trading in furnace oil

Why agro-trade is the key to agriculture

Farm fresh

Tea industry calls for aggressive promotion

Good demand drives prices at Kochi tea sale

Cotton prices may drift lower

AP gold festival to begin on Oct 10

Higher groundnut crop may boost kharif oilseed output

Vegoil prices likely to turn bullish on bio-diesel demand — Imports seen at over 50 lakh tonnes

Cashew exporters seek benefits under farm scheme

Global coffee supply projected to dip

Madhusudhan Rao is Campco MD