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Cotton futures ended lower on Friday as poor demand and global recession depressed prices. Cotton will await cues from equities, energies and the US dollar to determine its next moves. The market has digested the bearish inputs from the US Agriculture Department’s monthly supply/demand report. As expected, the USDA reduced world 2008/09 cotton consumption to 116.59 million (480-lb) bales, from 119.33 million bales. World cotton 2008/09 ending stocks rose to 58.77 mil lion bales, from 57.40 million bales. The US 2008/09 cotton exports were also cut to 12.25 million bales from 13 million bales.

Active December cotton futures tested the support levels in line with our expectations. A bearish consolidation is in progress now. Important support is at 42.70 cents now and a break below could trigger a decline towards recent lows at 39 cents. Good resistance was seen at 45-46 cents. As expected, the big picture has turned bearish and only weekly close above 55c will now strengthen the view for a possible reversal upwards. Possible downside targets are at 36 cents now, from where a possible upward correction could be seen. Failure to find support here could even drag prices lower towards 34c being a critical support level. Indicators are neutral picture now. RSI is in the neutral zone indicating that it is neither overbought nor oversold. 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 test the support levels. Supports are at 43.25, 41.30 & 39.50 cents and resistances are at 45.75, 47.50 & 49.10 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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