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NYBOT Cotton futures ended lower Friday on profit-taking and position adjustment ahead of release of a government crop report and options expiration next week. On Tuesday, the market will be digesting the monthly supply/demand report from the US Agriculture Department. Market participants will be looking at whether the USDA would reduce, as expected, its estimate of the US 2009/10 cotton crop. Markets are expecting USDA to reduce its estimate for the US. 2009/10 cotton crop to an average of 12.70-75 million (480-lb) bales, against the USDA forecast in October of 13 million bales. In 2008/09, US cotton output hit 12.82 million bales.

NYBOT Cotton futures moved in line with our expectations. A potential target at 69.50c has been met. As mentioned in the previous update, we can now expect corrective declines to 66.10c followed by very important support at 65.45c also being a rising trend line support. A possible double top pattern has emerged which is seen as a bearish sign. However, an important long-term trendline support is at 64.00c. Only a direct rise above 69.50c could dent our bearish expectations and continue to rise further higher towards 71-72 cents.

Elliot wave analysis indicates a new impulse wave being unfolded with possible targets at 71-72 cents in the coming sessions. This has been confirmed on a rally above 64 cents. RSI is in the neutral zone now indicating that it is neither oversold nor overbought. The averages in MACD are above the zero line of the indicator indicating bullishness. Therefore, look for cotton futures to test the support levels and then rise higher subsequently. Supports are at 65.45, 64 & 63.10 cents. Resistances are at 67.80, 68.85 & 70.25 cents.

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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