The Hindu Business Line : Cotton futures may correct higher

New York cotton futures ended flat on Friday with no clear direction and lack of any major fundamental news. Fundamentally, the trade is waiting for more definite word or news on China, the world's top consumer of cotton, for renewed demand for fiber.

The active December contract is still moving in a broad range. Supports are at 50.10c followed by important support at 49.85 cents. No change in view. The bigger picture for cotton futures still looks quite favourable for a test of 60c or even higher as long as 49.75-50 cents remains intact.

A corrective pullback to 53.75-54.10 cents looks likely for the week. 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 seems to have indicated the beginning of the third wave move targeting 73-75 cents, but at the same time should not drop below 48 cents for the bullishness to remain intact. 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 bearishness. Only a crossover of the averages above the zero line again will indicate a bullish reversal. Current prices are below the short-term average of 8-day EMA at 52.45 and the 34-day EMA is at 53.71 cents. Therefore, look for cotton futures to correct higher in the coming week.

Supports are at 51.50, 50.10 and 49.72 cents. Resistances are at 53.50, 54.87 and 55.60 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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