The Hindu Business Line : Cotton may test support levels

However, the markets may turn quieter next week due to the Lunar New Year festivities under way in China. Market participants continued to monitor the situation in Texas, the top growing State in the country and whose farms are reeling from severe drought. Energy prices hovering near the recent highs will also underpin cotton futures, as it enjoys a price advantage compared to the petrochemical based fibres.

The now active March contract tested the resistance levels and corrected lower as expected. Prices have found resistance near the trend line resistance point at 56.45 cents. It is possible to see a follow-through and test of support levels at 54 cents followed by important support at 52.75-53 cents.

As mentioned earlier, the bigger picture weekly charts continue to show a bullish triangle pattern in the making. A retracement to 53.50-54 cents looks likely from where it is expected to consolidate and 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. It is possible a big impulsive third wave move may happen from here. 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 a bullish reversal in the bigger picture. Current prices are above the short-term average of 8-day EMA at 56.22 cents and the 34-day EMA is at 54.85 cents. Therefore, look for cotton futures to the test the support levels and rise higher again.

Supports are at 54.95, 53 and 52.80 cents. Resistances at 56.50, 57.80 and 58.25 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.)