The Hindu Business Line : Cotton futures may correct higher

New York cotton futures ended marginally lower on Friday erasing losses made during the week on follow-through speculative selling. Fundamentally, the market is now turning its attention to growing conditions in the US.

The US Agriculture Department will be releasing its annual potential plantings report on March 31. The steady pace of consumer demand could be seen in the weekly export sales report of the US Department of Agriculture. USDA showed total US cotton sales at 466,600 running bales (RBs, 500-lbs each), from last week's 465,500 RBs and higher than trade expectations.

The Active May contract headed lower testing the support levels as expected. As mentioned in the previous update, prices structures favour a downtrend in the short-term. Prices edged lower on the break of the long-term trend line support point. Important resistance is at 53.75c.

Failure to cross this level will hint at more bearishness to set in targeting 51.50-52c or even lower to the psychological 50c levels, before we see the up trend resume. 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. Current prices are above the short-term average of 8 day EMA at 53.25c indicating bullishness and the 34-day EMA is at 54.51 cents. Therefore, look for cotton futures to test the support levels and then correct higher subsequently.

Supports are at 51.50, 50.75 and 49.75c. Resistances at 53.75, 55.00 and 56.50 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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