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Gnanasekar T.

NEW York cotton futures ended lower on Friday as the market pulled back after surging to a two-month high, on talks of the cotton crop in top consumer China facing problems with disease. Cotton areas in eastern China have seen a rather wet weather pattern over the last couple of months and expectations of more to come.

The monthly USDA demand/supply report would through light on the possible damage due to the recent hurricanes in the US. Fundamentally, cotton is supposed to be weighed down by large crops in countries such as the US. But talk of problems confronting the harvest in China, the world's biggest consumer of cotton, and the hurricanes which hit the cotton growing areas, may have provided support for futures in the recent weeks. Demand continues to be robust, as illustrated in the weekly export sales figures of the USDA.

The USDA showed the US cotton sales at 2,48,400 running bales (RBs, 500-lbs each), higher than market expectations.

The Active December contract rose higher testing the important falling trend line resistance near 54.50-55c.

As mentioned earlier, clear direction for cotton futures looks difficult till a move above 53c is seen or a fall below 48c.

Prices broke the key resistance at 53c triggering bullishness this week. Supports will now be noticed at 52c followed by important 200-day ema support 51.20c.

As long as these support points hold the downside, look for cotton futures to cross the important near-term resistance at 55c in the coming weeks or even higher towards 60c. Elliot wave analysis points to a corrective pattern in progress, ending at 41.71c and a new impulse still in progress. The corrective 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 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 52.82c and the 34-day EMA is at 51.39 cents. Therefore, look for cotton futures to test the support levels and rise higher. Supports are, at 52.50, 51.25 & 49.80c. Resistances, at 54.45, 55 & 57.50 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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