The Hindu Business Line : Cotton may test resistance level

New York cotton futures rose marginally higher on fears of persisting drought conditions surrounding the US cotton crop. However, markets are looking for fresh triggers for future direction.

Markets are waiting for release of next month's monthly supply/demand report from the US Agriculture Department, which will contain the first detailed look at market fundamentals in the 2006/07 marketing year (August/July). The market paid little attention to the weekly USDA export sales report since the figures were within expectations and the 2005/06 marketing year is almost over. USDA said total US cotton sales amounted to 107,500 running bales (RBs, 500-lbs each.

The active December contract bounced is edging higher in line with our expectations. As expected, prices rose higher after bouncing from near supports at 51.10c levels. Dips to 53.40c should offer good support in the coming week. Only a move above 56.90c will confirm bullishness ahead in the coming weeks.

A positive technical pattern is in formation presently, which looks to target 58c at least or could even go higher towards the psychological 60c. 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. A move above 58c seems to have indicated the beginning of the third wave move targeting 73-75c. 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 bearishness.

Only a crossover of the averages above the zero line again will indicate bullishness. Current prices are above the short-term average of 8 day EMA at 55.05c indicating bullishness and the 34-day EMA is at 54.38 cents. Therefore, look for cotton futures to rise higher and test the resistance levels.

Supports are at 54.50, 53.40 and 52.70c. Resistances are at 56.90, 57.75 and 58.25 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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