The Hindu Business Line : Bullish trend to resume in NY cotton

New York cotton futures ended higher on Friday on trade and speculative buying after the recent fall in prices during the week. Focus now would be the harvest of cotton crops in the US, China and key countries such as India and Pakistan. China's cotton harvest is expected to fall about 14 per cent this year due to heavy rain damage to the crop in central China.

The USDA in its recent report, forecasted Chinese cotton production in 2005/06 to 24.5 million (480-lb) bales from 25.5 million last month. Another area would be the pace of demand for cotton in the 2005/06 marketing year (August/July).

The weekly export sales report from the US Department of Agriculture did not provide a sustained boost for futures. The USDA said the US cotton sales amounted to 2,58,300 running bales (RBs, 500-lbs each), up sharply from last week's marketing year low of 42,000 RBs.

The Active December contract corrected lower towards the initial support point, which is a long-term falling trend line resistance point.

Should prices hold support here, we can expect the bullish trend to resume again. Good resistance will now be seen at 55-57c levels.

Near-term support is at 52.80c being a fibonnaci retracement level followed by the important support at 51.75c being the 200-day EMA point. As long as this support points hold the downside, look for cotton futures to rise higher in the coming weeks towards 60c or even higher. However, an unexpected move below the 51.54c, can cast doubts on our bullish view.

Favoured view is to look for cotton futures to head higher after a corrective dip lower. 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. 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 54.71c and the 34-day EMA is at 53.41 cents. Therefore, look for cotton futures to test the support levels in the coming week. Supports are, at 52.80, 51.75 & 50.47c. Resistances, at 55.08, 57 & 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 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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