The Hindu Business Line : Cotton likely to rise further

The focus next week will likely turn to the monthly supply/demand data due on Friday from the US Department of Agriculture. Most of that attention would be on any revisions to the level of demand, particularly from top world consumer China. The US cotton harvest is proceeding and market participants are keeping tabs on the pace of demand from countries like China, the world's top consumer of cotton.

The USDA estimated last month that China will import 16 million (480-lb) bales of cotton in the 2005/06 marketing year (August/July). Demand for cotton has been robust and this could be seen in the US Department of Agriculture's weekly export sales report. USDA said US cotton sales reached 325,500 running bales (RBs, 500-lbs each), from last week's 380,200 RBs.

The now active March contract headed lower and is set to test the trend line support point at 50.95-51 cent levels. The bigger picture weekly charts continue to show a bullish triangle pattern in the making and therefore, it is difficult for prices to fall lower sharply.

As long as price stays above 50.75-51 cent levels, expect cotton futures to move higher again. Only a daily close below 48.25 cents will signal bearishness in cotton futures. On the other hand, a move above 55 cents directly can take prices higher towards recent resistance at 58.25 cents or even higher towards 60 cents.

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. Daily close below 48.25 cents will change this outlook and lead to a sharp fall lower.

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 in the bigger picture. Current prices are above the short-term average of 8-day EMA at 52.10 cents and the 34-day EMA is at 52.38 cents.

Therefore, look for cotton futures to test the support levels and rise higher.

Supports are at 50.25, 49.10 & 48.25 cents. Resistances at 53.55, 54.05 & 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 that of his employer. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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