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Cotton futures dropped to fresh two-year lows on Friday on speculative selling as poor demand and global recession is expected to further depress prices. The important government data on demand/supply is expected on Monday. Markets are expecting Monday’s November US Department of Agriculture cotton production and supply and demand report to have any, effect on the market. Decreased demand, expected to show up in lower US export estimates and lower world consumption.

Active December cotton futures tested the support levels in line with our expectations. As mentioned in the previous update, further lows towards 42 cents were anticipated. Good resistance was seen at 45-46 cents being a trend line resistance. As expected, the big picture has turned bearish and only weekly close above 55 cents will now strengthen the view for a possible reversal upwards. Possible downside targets are at 40.45 cents now, followed by 38 cents being a crucial trend line support point, from where a possible upward correction could be seen.

Failure to find support here could even drag prices lower towards 35 cents being a critical support level. RSI is in the highly oversold zone indicating a possible upward correction in the offing.

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 test the support levels.

Supports are at 41.25, 40.50 & 38 cents and resistances are at 43.75, 44.50 & 46.10 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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