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Cotton futures finished on Friday at their highest level since 2004 on sustained all-round buying by speculators and the trade as lower US cotton sowings next year stoked a rally in the market. US cotton sowings in 2008 are expected to fall sharply because of strong rallies that hoisted grains like corn and wheat among others to multi-year highs. US 2007 cotton plantings stood at 10.847 million acres. The market did not derive too much inspiration from the USDA’s wee kly export sales report. USDA said total US cotton sales stood at 1,47,400 (500 lb) running bales, down from 1,64,400 RBs in last week’s report.

Active March cotton futures contract rose sharply higher in line with our expectations. As seen in the chart above, a bullish pattern which we have been discussing has materialised. Near-term resistance is at 69.85 cents an important long-term trend line resistance point. Direct rise above 69.85 cents can see cotton future possibly target 75 cents on the upside. Crucial support is at 66.75 cents and as long as 64 cents remains undisturbed, we can expect prices to continue rising higher. Our favoured view expects cotton futures to find supports at the above mentioned levels, failing which we could visit the 58-60 cents zone again 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 rise higher.

Supports are at 66.75, 64 & 61 cents and resistances are at 68.10, 69.85 & 72 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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