The Hindu Business Line : Cotton futures to test support levels

Cotton futures ended lower on Friday as the market pulled back after surging to a two-month high. Weekly export sales data from the US Agriculture Department was disappointing, but they also served to confirm the poor level of demand for cotton given the gloom brought on by a global recessions. The USDA said the US cotton export shipments reached 1.37 lakh RBs, against 2.11 lakh RBs in the previous week. The ICAC forecast the 2008/09 season-average Cotlook A Index at 68 cents per lb, down from 72.90 cents per lb in 2007/08. It also forecast global consumption to fall to 6.9 million tonnes in 2008/09, the lowest level in six years, due to a sharp drop in global consumption.

Active March cotton futures tested the resistance levels in line with our expectations. Cotton futures are headed towards important resistance at 51-52 levels in the coming sessions. The overall picture for fibre contracts is still weak and only weekly close above 55c will now strengthen the view for a possible reversal upwards. As expected an upward correction was seen from lows below 40c. We expect prices to find resistance in the 51-55c cents zone and then decline lower towards 34c being a critical support level. Indicators are displaying a neutral picture now. RSI is in the neutral zone 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 now. Only a cross over below the zero line again could signal bearishness. Therefore, look for cotton futures to test the support levels and rise higher again.

Supports are at 47.70, 46.25 & 44.25c and resistances are at 49.45, 50.50 & 52 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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