The Hindu Business Line : Cotton futures may correct lower

New York cotton futures ended higher on Friday, on weather concerns as speculators priced in a weather premium on the back of poor forecasts for top growers China and US. The Active July contract rose higher perfectly in line with our expectations. Prices crossed the immediate resistances at 51.15 cents followed by 52.20 cents. It has also closed above the important 200-day EMA level of 52.75 cents. Resistance will now be seen at 53.95-54.10 cents.

A minor correction lower to 51.75-52 cents looks likely for the week before the up trend resumes. Elliot wave analysis points to a corrective pattern in progress, ending at 41.71cents 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. However, a fall below 45 cents will alter the wave counts and put cotton futures in the bearish path, which we do not favour at this point.

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. A positive divergence seen in indicators, was also a reason for the bullish 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 51.49 cents indicating bullishness and the 34-day EMA is at 51.48 cents. Therefore, look for cotton futures test the resistance levels and correct lower subsequently.

Supports are at 52.05, 51.49 and 50.83 cents. Resistances at 53.95, 54.77 and 55.85 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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