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New York cotton futures ended sharply higher on Friday tracking a sharp rally in grains, which could result in an acreage shift from cotton to grains. Markets brushed aside bearish USDA demand/supply figures.

On Friday, the US Agriculture Department released January revisions to its global supply and demand estimates, which showed increases in US and Chinese production, a reduction to US exports, and a cut in Chinese imports all of which was bearish.

The active March contract moved in line with our expectations. As expected prices found support at the 52.50 cents level and rallied higher from there. The Friday's bar is extremely bullish. Any dips to 53.50-75 cents will find good support in the coming sessions.

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 54.55 cents indicating bullishness and the 34-day EMA is at 54.41 cents. Therefore, look for cotton futures to consolidate and rise higher.

Supports are at 53.56, 52.50 and 51.85 cents. 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.)

Gnanasekar. T

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