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New York cotton futures settled lower on profit-taking and option-related selling as the market retraced from a three-and-half year high. Markets will now look forward to the demand/supply report from USDA in the month of August for further clues, the first in the 2007/08 marketing year (August/July). The level of sales were encouraging given the 2006/07 marketing year (August/July) is winding down.

The active contract fell quite sharply in line with our expectations. The correction of this magnitude is needed if the up trend had to sustain. There is a possibility of the gap in the 58c zone to be tested before it finds the momentum again to rise higher. Resistance will now be seen in the 63-65c range. As we have been maintaining, a re test of 70c seen in 2004 is on the cards. As envisaged in the previous update, the pace of rise, combined with record high open interest and highly overbought indicators warn of a correction lower in the coming week. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD are above the zero line indicating a bullish reversal. Only a cross-over of the averages below the zero line again will now indicate a bearishness. Prices are above the short-term 8-day period and 21-day period EMA at 61.25 and 59.50 cents respectively indicating short-term bearishness. Therefore, look for cotton futures to test the support levels and rise higher subsequently.

Supports are at 61.75, 59.40 and 58 cents. Resistances at 63.65, 65 and 66.80c cents respectively.

Gnanasekar T.

(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 p rice movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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