The Hindu Business Line : Positive divergence in NY cotton

NYCE cotton futures ended higher on Friday, after upbeat crop reports from the USDA spurred buying interest from trade and speculators ahead of a three-day weekend. Federal offices and the commodity exchanges in New York will be shut on Friday for the state funeral of the former US President Ronald Reagan.

The US Department of Agriculture, in its monthly supply/demand report, reduced its estimate for world cotton ending stocks in 2004/05 to 35.35 million (480-lb) bales from last month's 36.46 million and raised world consumption to 99.86 million from 99 million.

The USDA also projected cotton consumption at a higher 99.86 million (480-lb) bales in June from 99.00 million in May. In the same report, world production statistics rose to 102.88 million (480-lb) bales in June from 102.50 million in May. In its weekly export sales report, the USDA said combined US upland cotton sales hit 2,59,100 running bales (RBs, 500-lbs each), which is seen as a very strong number.

Switch trade from July to December will be a key feature in the coming week with July being the old crop and December the new crop.

The active July contract touched a new nine-month low. Support at 55c is quite strong now and looks like a temporary bottom here. Initial resistance will be seen at 59.35c followed by crucial resistance at 62c. Failure to cross this level will see cotton futures test the important falling trend line support point at 53.20c from there. There are positive indications of cotton futures now to trend higher from here and test the important falling trend line resistance point at 64.45c. Elliot wave analysis points towards a complex corrective structure currently underway. It is still difficult to call for a new impulse to begin from here unless the important resistance at 65c is overcome. RSI is now in the neutral zone indicating that it is neither oversold nor overbought. A positive divergence is seen where prices have made a lower low, which is not confirmed by a lower low in the indicator. The averages, in MACD are below the zero line in the indicator suggesting bearishness. Only a cross over of the averages above the zero line will confirm a trend reversal. Current prices are above the short- term average of 8-day EMA at 57.85c and the 34-day EMA is at 60.80 cents. Look for prices to head higher. Resistances at 59.35, 61& 62.50c, supports, at 56.20, 55.50 & 53.20c respectively.

(The author is associated with the Multi Commodity Exchange of India (MCX). The views expressed in this column are his own and not of MCX. This analysis is based on the historical price movements and there is risk of loss in trading.)

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