The Hindu Business Line : Cotton futures may test support, rise

New York cotton futures finished firmer on Wednesday due to speculative buying ahead of a long weekend. The cotton market was closed on Thursday and Friday for Thanksgiving. Fibre contracts recovered higher, now that pressure from the liquidation of positions in the spot December contract abated. The focus will gradually turn to demand in the market, with attention fixed firmly on leading consumer China. In the domestic markets, India's exports are expected to be robust as last year as orders from China and other countries remain strong.

The active March contract pulled back higher quite sharply. As mentioned in the previous update, there were good signs of cotton futures to turn higher. Crucial support will be at 51.25 cents. Fall below this level will indicate resumption in bearish trend. However, positive divergence in indicators hint at a sharp recovery in cotton futures in the coming week and prices are expected to firm up testing the important resistance at 54.50 cents.

Short-term resistance is at the falling trend line resistance point at 53.55 cents. Elliot wave analysis stills points to a corrective pattern in progress. A daily close below 48 cents will confirm the corrective pattern we have been tracking and will need to review the counts.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. Positive divergence is noticed in both the indicators, where prices have made a lower low not confirmed by a lower low in the indicator. The averages, in MACD are below the zero line in the indicator suggesting bearishness to be intact.

Only a crossover of the averages above the zero line again will indicate a bullish reversal. Current prices are above the short-term average of 8-day EMA at 51.90 cents indicating bullishness and the 34-day EMA is at 53 cents. Therefore, look for cotton futures to test the support levels and rise higher.

Supports are at 51.25, 50.15 and 49.60c Resistances are at 53.55, 54.50 and 56.50 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.)

Gnanasekhar T.

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