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Cotton futures ended sharply higher on Friday at a fresh six-month high on investment fund buying on the back of strength in the soya complex.

High soyabean prices could well push farmers to plant beans more than cotton. With funds returning back after a dreadful year, the grains/soya and cotton futures have been on a buying spree.

However, world cotton end stocks are forecast to rise two per cent to a record 13.4 million tonnes during 2009/10 as global output exceeds slowing demand, an international farm group said on Friday.

Active July cotton futures rose perfectly higher in line with our expectations.

A daily close near the previous highs could indicate bullish strength for fibre contracts going forward. As mentioned in the previous update, a daily close above 50.25c has forced us to abandon our overall bearish outlook for 36 cents or even lower.

The present rally could test 59.5-60c or even higher towards 61 cents in the coming sessions. Favoured view indicates a rise towards 59 cents levels in the coming week.

Elliot wave counts still indicate a bearish scenario while below 51 cents.

RSI is in the highly overbought zone now indicating that a possible downward correction in the coming sessions.

The averages in MACD have gone above the zero line of the indicator indicating a bullish reversal. Only a cross over below the zero line again could signal bearishness. Therefore, look for cotton futures to test the resistance levels.

Supports are at 55.20, 52.85 & 50.52 cents and resistances are at 57.95, 58.45 & 60 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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