The Hindu Business Line : Cotton to test support, rise

New York cotton futures ended lower on Friday on speculative selling and switch trade once again getting active with most market participants waiting on the sidelines ahead of the important demand/supply data expected next week. Last month, the USDA forecast world cotton production at 116 million (480-lb) bales and world consumption at 127 million bales. Another important thing to note would be reduction in net speculative short positions in cotton futures by almost 90 per cent, indicating a possible trend change to begin in cotton as per the CFTC data release this week.

The active contract moved in line with our expectations. No change in view. Resistance at 52-53 cents range has been difficult to surpass, also being a trend line resistance point. We can either see a corrective decline towards 49 cents or a consolidation in the 49-51 cents range before fibre contracts resumes the climb higher again.

Fall below 48 cents will neutralise bullish expectations leading prices further lower. Our favoured view is to expect a corrective decline to 48 cents followed by a rise higher again. Positive divergence in indicators, clearly suggested a reversal to the up side. As we have been mentioning in the previous updates, 46-47 cents levels will offer good support for a retest of 57-58 cents in the week's to come.

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 cross-over of the averages above the zero line again will now indicate a bullish reversal. Therefore, look for cotton futures to test the support levels and rise higher again.

Supports are at 50.25, 49.25 and 48.75 cents. Resistances at 51.65, 52.78 and 53.10 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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