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Cotton futures ended slightly lower on Friday on speculative selling, mostly awaiting the release of the important Government data on plantings next week. The important question would be how much damage poor weather inflicted on Texas, top cotton growing State of the country.

Markets expect plantings between 8.8 and 9.2 million acres to cotton. USDA in March estimated cotton sowings this season at 9.39 million acres. In contrast to falling acreage levels and forecast drop in production in the US, the Indian cotton production continues to break records.

The economic slowdown, which is forecast through at least 2008, is likely to see the demand for cotton affected more than most major soft commodities keeping a lid on prices.

Active December cotton futures contract are higher in line with our expectations. As mentioned in the previous update, fibre contracts showed promise to edge higher gradually. Important resistance at 81.50 cents has been broken convincingly.

Next important resistance lies at 84.10 cents. Ideally, cotton futures could find good resistance here. Daily close above this level could signal bullishness targeting 88-89 cents. Supports will now be seen at 80.75 cents followed by 78 cents.

However, an unexpected fall below 76 cents could change the picture to neutral. The big picture counts still are giving mixed signals and would, therefore, prefer to watch the prices for more clues. Indicators are displaying a neutral picture.

The RSI is in the neutral zone now, indicating that it is neither overbought nor oversold. The averages in MACD have gone above the zero line of the indicator indicating a bullish reversal. Therefore, look for cotton futures to test the resistance levels.

Supports are at 80.75, 78 & 76.25 cents and resistances are at 84.25, 86.48 & 88 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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