The Hindu Business Line : Cotton prices may head higher

NEW York cotton futures ended higher on speculative buying as the market waitedfor positive leads. Though prospects of a huge crop looms over the market, robust demand is expected to neutralise the effect.

USDA's weekly report showed sales for 2005/06 at 429,500 running bales (RBs, 500-lbs each). The recent US Department of Agriculture's monthly supply/demand report showed the US cotton crop hitting a record 23.7 million (480-lb) bales and world ending stocks expanding to 50.92 million bales, up from last month's 50.18 million. The USDA increased its estimate of China's cotton imports to 16.5 million bales versus last month's forecast of 16 million and pegged world cotton consumption at 114.85 million bales, against last month's 114.4 million.

In other news, cotton measures undertaken at the World Trade Organisation's ministerial meeting in Hong Kong will take time since any measures would be reviewed by the industry and the US Congress.

The now active March contract is still stuck in a range. This uncertain range is expected to continue as the markets head for the Christmas holidays. As mentioned earlier, 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.

Break above 54.25 cents can trigger a rally higher towards the trend line resistance point at 55-56 cent levels. As long as price stays above 50.75-51 cent levels, expect cotton futures to rise higher again. Only a daily close below 48.25 cents will signal bearishness in cotton futures.

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 have gone above the zero line in the indicator suggesting a bullish reversal in the bigger picture.

Current prices are above the short-term average of 8-day EMA at 53.06 cents and the 34-day EMA is at 52.65 cents. Therefore, look for cotton futures to consolidate and rise higher.

Supports are at 50.25, 49.10 & 48.25 cents. Resistances at 54.05, 55 & 58.25 cents respectively.

(The author is in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of MCX. 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.)