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Cotton futures ended sharply higher on Friday on short-covering as equities gained. Cotton has potential to hold gains and rise next week, though the stock market remains the barometer of economic strength and market direction. Industry buying and bottom picking also came in as Thursday’s 2-year-plus lows may have been a technical bottom or at least a short-term floor. However, this rally could be short-lived as the demand supply fundamentals are increasingly bearish as the world economic situation weakens.

Active December cotton futures moved lower further. As mentioned in the previous update, further lows towards 44 cents were anticipated and the markets tested this level. A sharp bounce from here adds hope that we could see this pullback extend further. Good resistance will now be seen at 55 cents being a trend line resistance point. Further resistance is at 58c now. We can expect some consolidation in the 48-52 cents zone before it tests the resistance levels mentioned above.

As mentioned earlier, the big picture has turned bearish and only weekly close above 58c will now strengthen the view for a possible reversal upwards. Indicators are neutral picture now. RSI is in the neutral zone indicating that it is neither overbought nor oversold.

A positive divergence is also seen adding to bullish hopes. However, the averages in MACD are still below the zero line of the indicator indicating a bearish reversal. Only a cross-over above the zero line again could signal a clear bullish reversal. Therefore, look for cotton futures to consolidate and rise higher subsequently. Supports are at 49.50, 48.25 & 46 cents and resistances are at 53.25, 54.40 & 56 cents, respectively.

Gnanasekaar 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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