The Hindu Business Line : Cotton futures likely to rise

New York cotton futures ended higher on speculative buying on expectations of sizeable acreage shift resulting in lower output. USDA is expected to release its potential plantings report on March 30. Cotton futures are expected to tread cautiously with a bullish bias until the report is out.

Earlier in December, the National Cotton Council estimated the acreage to be 13.2 million acres. Other private estimates have come much lower up to even 12 million acres. A sharp rally in grains mostly corn during 2006 and 2007 has led to a sharp decline in US cotton plantings.

The active May contract moved higher in line with our expectations. No change in view. Prices moved higher and broke the near-term resistance at 54 cents and now, only a break above resistance at 55-55.46 cents will trigger a sharp rise to 58 cents, followed by the psychological resistance at 60 cents. Resistance will be quite strong in the 55-56 cents range also being a trend line resistance point.

As long as 51.30 cents holds any attempts to decline, we see a bullish market ahead for fibre contracts. 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 have gone above the zero line in the indicator suggesting a bullish reversal. Only a crossover of the averages below the zero line again will now indicate bearishness. Current prices are above the short-term average of 8-day EMA at 53.82 cents, indicating bullishness and the 34-day EMA is at 53.68 cents. Therefore, look for cotton futures to rise higher.

Supports are at 53.95, 52.80 and 51.65 cents. Resistances are at 55.10, 56.50 and 57.20 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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