The Hindu Business Line : Cotton futures may rise

New York cotton futures surged higher on speculative buying hitting a three-week high sparked by a bullish data release from the USDA. The US Agriculture Department's monthly supply/demand report forecast 2006/07 cotton consumption at a robust 122 million(480-lb)bales, while world production was 7 million lower at 115 million bales.

USDA cut world-ending stocks 5.0 million bales from 2005/06 to 47.42 million bales in 2006/07. Imports by China in 2006/07 were pegged at a record 20 million bales and consumption at a massive 51 million bales. Demand from China continues to rise and world-ending stocks are falling by such a sharp number. The market more or less turned from a surplus of cotton to a tight situation overnight.

The Active July contract moved sharply higher in line with our overall expectations. As mentioned in the previous update, we believe prices could find excellent support at 50-50.70 cents and bounce higher from there sharply. Important resistance will now be seen at 53.10 cents, being the trend line resistance point, followed by 54.65 cents being another important resistance level. A daily close above 54.10 cents 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. A move above 58 cents will confirm the beginning of the third wave move. 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 above the short-term average of 8-day EMA at 51.23 cents and the 34-day EMA is at 52.15 cents. Therefore, look for cotton futures to rise higher and test the resistance levels. Supports are at 51.30,50.75 and 49.95 cents. Resistances are at 53.10, 54.65 and 55.21 cents respectively.

(The author is the Director of Commtrendz Research and also 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.)

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