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Cotton futures tumbled on fund sales and end-of-the-month liquidation to settle on Friday near a three-month low. Inability to climb back higher discouraged speculative participants, which triggered a sell-off subsequently. Cotton plantings for next year is expected to be lower than last year.

US cotton plantings in 2007 reached an 18-year low of 11.01 million acres. Exports have been robust though. The USDA export sales showed US cotton sales at 2,66,400 running bales against 2,39,700 RB’s last week. Next bit of data which will become the focus of the market will be the monthly supply/demand report released on December 11. Active March cotton futures contract dropped sharply lower. Trend line support is seen at 61 cents now and is expected to hold near-term attempts to decline.

Crucial support is at 59 cents and as long as this level holds support, we can expect prices to consolidate and rise higher again. Our favoured view expects cotton futures to find support in the 61 cents region failing which we could visit 59 cents and then resume the climb higher again.

This zone is also the breakout point, which spurred a huge rally in cotton futures past three months. Elliot wave counts indicate a third wave impulse in progress. After this correction ends, we can expect the impulse to continue higher.

Indicators are displaying a neutral picture. RSI is in the neutral zone indicating that it is neither overbought nor oversold.

The averages in MACD are still above the zero line of the indicator indicating bullishness to be intact. Therefore, look for cotton futures to test supports and rise higher subsequently.

Supports are at 62.95, 61.25 & 59 cents and resistance are at 64.75, 66.10 & 67.50 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 price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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