The Hindu Business Line : Cotton may test resistance

New York cotton futures ended marginally higher on Friday on speculative and industry buying. NYBOT cotton prices are down almost 6.0 per cent since the start of April and off nearly 9 per cent from peaks in January.

With the transfer of positions out of spot May and into the back months is almost complete, markets are expected to focus once again on the fundamental situation. Export sales continues to be robust. The US Agriculture Department's weekly export sales report showed total US cotton sales 834,000 running bales (RBs, 500-lbs each), more than double last week's 327,500 RBs.

The active July contract tested the support levels in line with our expectations. Important support is now at 50.80 cents. No change in view. Daily close below 50.05 cents on the downside could once again lead prices lower towards 47 cents. However, favoured view expects the current fall to find support in the 50 cents region and slowly edge higher again towards 55 cents in the coming weeks or even higher.

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 below the zero line indicating bearishness. Only a crossover of the averages above the zero line again will now indicate a bullish reversal.

Current prices are below the short-term average of 8-day EMA at 51.90 cents indicating short-term bearishness and the 21-day EMA is at 51.85 cents. Therefore, look for cotton futures to test the resistance levels in the coming week. Supports are at 51.25, 50.75 and 48 cents. Resistances are at 52.15, 53.50 and 54.08 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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