The Hindu Business Line : NY cotton futures to move up

NEW York cotton futures ended marginally lower on Friday as market participants waited on the sidelines for the release of next week's key government crop report. 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 and China. Losses from a pair of killer hurricanes will barely dent the US cotton crop, so attention will be on the level of global fibre demand and what shape is the Chinese cotton crop in, since this will affect purchases by the Asian giant, the world's biggest consumer of cotton.

Last month, the USDA reduced its estimate for Chinese cotton production in 2005/06 to 25.5 million bales from the previous month's 26 million bales. Chinese cotton imports were seen up to 14.3 million from 14 million. Should the Chinese cotton crop numbers fall lower than expected, it would benefit cotton exporters in the US and take prices higher again.

The Active December contract is consolidating in a narrow range preparing to rise higher. Near-term support is at 52.75c followed by the important falling trend line resistance near 54.50-55c. Prices have broken the key resistance at 53c triggering bullishness. 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. However, an unexpected move below the 51.27c also being the 200-day EMA level, can cast doubts on our bullish view.

Favoured view is to look for cotton futures to head higher.

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 52.45c and the 34-day EMA is at 51.98 cents. Therefore, look for cotton futures to consolidate and rise higher.

Supports are, at 52.75, 51.25 & 49.80c. Resistances, at 55, 57.50 & 60.57 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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