The Hindu Business Line : Cotton may test support level

New York cotton futures ended lower on Friday on speculative selling and switch trade ahead of the contract expiry in the coming weeks. Encouraging numbers from the US Agriculture Department's monthly production report gave cotton an initial boost.

The Active May contract moved lower against our expectations. Resistance was quite strong at 53.75-54.50 cents levels. Failure to go past this level resulted in a sell-off. Presently, weakness will persist and prices could edge lower and come close to the psychological 50 cents mark.

However, we believe prices could find excellent support at 50-50.70 cents and bounce higher from there sharply. Important resistance will be at 55.15 cents being a horizontal trend line resistance point and an important barrier to cross in the near-term. Only a daily close above this level will again inspire confidence among bulls and see prices extending higher towards 58 cents or even higher towards 60 cents in the coming months.

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. RSI is in the neutral zone indicating that it is neither overbought nor oversold.

The averages, in MACD are below the zero line in the indicator suggesting a bearish reversal. Only a crossover of the averages above the zero line will indicate clear bullishness. Current prices are below the short-term average of 8-day EMA at 52.74 cents and the 34-day EMA is at 53.65 cents. Therefore, look for cotton futures to test supports initially and then bounce higher subsequently.

Supports are at 51.75, 50.71 and 49.93 cents. Resistances are at 52.78, 53.35 and 54.75 cents respectively.

(The author is 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.)

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