The Hindu Business Line : Cotton futures may correct lower, rise

New York cotton futures ended sharply lower on Friday on trade and option related selling. The sell-off in commodities and in the oil markets put some pressure on cotton. The market will be focusing on the annual meeting of the US cotton industry next week and the USDA's monthly supply/demand report at the end of the week. Poor export sales data from the US Agriculture Department had been expected for the most part due to the year-end holiday season.

The active March contract corrected lower as expected. A corrective fall began after the trend line resistance at 56.75-57 cents was tested. The rising trend line support point at 54 cents has given away opening way for a fall towards 52.50 cents in the coming week. We still believe we can expect a test of 60 cents, which will be a strong resistance to cross. A daily close above 56.50 cents will indicate bullish strength, leading prices higher towards 57.70 cents followed by the psychological resistance at 60 cents. In the big picture, Elliot wave analysis still points to a corrective pattern in progress and a break above 60.52 cents will give rise to a new impulse.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD are have gone above the zero line in the indicator suggesting bullishness to be intact. Only a crossover of the averages below the zero line again will now indicate a bearish reversal. Current prices are above the short-term average of 8-day EMA at 55.25 cents indicating bullishness and the 34-day EMA is at 54.48 cents. Therefore, look for cotton futures to correct lower initially and then pullback higher. Supports are at 53.56, 52.50 and 51.85 Resistances are at 55.40, 56.10 and 57.35 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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