The Hindu Business Line : Short-term bearishness in cotton

New York cotton futures ended higher on speculative buying as the markets prepared itself for the next important data on demand/supply from USDA. The report is vital because it will be the first detailed outlook of market conditions in the 2007/08 marketing year (August/July). Estimates of US cotton output have been steadily reduced because a sizzling rally in grains prompted many farmers to switch to the grain this season. Meanwhile, ICAC said cotton end stocks will decli ne 1.7 million tonnes, or 14 per cent, to 10.4 million in 2007/08 as production, estimated at 25.1 million tonnes, will outstrip demand. Consumption is forecast to increase by 2 per cent to 26.9 million tonnes in 2007/08.

The active contract rose higher range in line with our expectations. There is still a possibility of the gap in the 58c zone to be tested before it finds strong momentum again to rise higher. Resistance will now be seen in the 63-65c range. And as long as 66.50/70 cents caps upside attempts, we can expect cotton futures to correct lower. As we have been maintaining, a re-test of 70 cents seen in 2004 is on the cards. The bigger picture looks bullish and is set to scale new peaks after prices broke above the 60 cents range convincingly. 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 64.45 cents and 63.95 cents respectively indicating short-term bearishness. Therefore, look for cotton futures to test the resistance levels and correct lower subsequently.

Supports are, at 61.75, 59.40 and 58 cents. Resistances are at 65, 66.70 and 68.95 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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