The Hindu Business Line : Cotton futures likely to fall

NYCE cotton futures finished lower on Friday on speculative selling and rolling over of the active December month contracts which added pressure to cotton prices struggling to get a grip on the direction from here.

Markets will now look forward to the US Department of Agriculture's demand/supply report due on November 12 for any clear direction from here. There are expectations that wet weather early this week could have slightly affected the quality of cotton causing some excitement ahead of the upcoming update from the USDA next week on the world cotton market.

A record US cotton crop and large crops in other countries are, keeping futures on the defensive. The harvest of the U.S. crop is expected to be in full swing in November and this should pressure prices lower.

The USDA weekly export sales figures came in neutral to bearish slightly better than the previous week but could not halt the slide in prices. The US Department of Agriculture's weekly export sales report said total US net upland cotton sales reached 91,500 running bales (RBs, 500-lbs each), compared to 72,500 RBs in last week's report.

The active December contract has finally broken the lower end of the range it has been trading in the recent past. As mentioned before a daily close below 44c on the downside has the potential to test 42.50c or even lower. Price structures look set for a test of 42.50c or even lower with some corrective pullback expected from time to time. The potential to rally higher looks very unlikely as the bigger picture still looks bearish. As we have been maintaining, caution should be exercised on getting unduly bullish as the current move is a technical correction and prices could fall back lower again. Bullish reversal can be confirmed only on the break of 57.35c.

Elliot wave analysis points towards a complex corrective structure currently underway. As mentioned earlier, we are in a corrective A-B-C pattern which still looks to be in progress. Only a daily close above 57.59c will confirm that we have begun a new impulse. This is also close to the 200 day ema level watched by traders closely. RSI is back in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD have gone below the zero line in the indicator suggesting bearishness. Only a crossover of the averages above the zero line in the indicator will suggest a bullish reversal now. Current prices are below the short-term average of 8 day EMA at 44.51c and the 34-day EMA is at 46.39 cents. Look for prices to consolidate and head lower. Supports, at 43.25, 42.50 & 41.65. Resistances, at 44.50, 45.30 & 46.25 cents 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 his employer. 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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