The Hindu Business Line : Cotton futures may test support level

New York cotton futures ended lower on Friday on speculative sales moving in a narrow range. The market will be turning its attention in two weeks' time to the annual potential plantings report by the US Department of Agriculture, which is due out on March 31.

Market received an early boost from the strong demand for the fiber in the weekly export sales report of the US Department of Agriculture. USDA said total US cotton sales stood at 465,500 running bales (RBs, 500-lbs each), sharply up compared to last week, at 334,000 RBs once again re enforcing the view that demand continues to be robust despite a higher crop.

The Active May contract is seen consolidating in a range now. Prices are finding support near the long-term trend line support point presently. Prices structures do not favour immediate up trend. Prices could edge lower towards 53c or even lower to 51.50-52c before we see the up trend resume. This level also happens to be 200-day EMA point, watched by traders for signs of trend reversal. The bigger picture weekly charts shows a bullish triangle pattern in the making and as long prices stay above 51c, expect cotton futures to rise 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. It now looks to have begun the big impulsive third wave move, which we have been expecting for a while.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD have gone below the zero line in the indicator suggesting a bearish reversal. Only a cross-over of the averages above the zero line will indicate clear bullishness.

Current prices are above the short-term average of 8-day EMA at 54.48c indicating bullishness and the 34-day EMA is at 55.10 cents. Therefore, look for cotton futures to test the support levels in the coming week.

Supports are at 53.25, 52.75 and 51c. Resistances at 55.40, 56.45 and 58.00 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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Cotton futures may test support level