The Hindu Business Line : Correction likely in NY cotton futures

NEW York cotton futures ended firmer on Friday on talks of hefty Chinese buying of the US cotton. Going forward market participants will now look forward to next month's USDA Supply/demand report for future direction. Weather from here on should be an important factor to monitor and assuming weather is average to normal, we could see cotton future prices come under pressure.

Fundamentally, cotton has bucked large cotton crops to stay above 50 cents, due to steady purchases by consumers and expectations by the trade of lower cotton plantings from major producers in the 2005/06 season. The US Department of Agriculture's weekly export sales report was below market expectations this week. On Thursday, the US Department of Agriculture weekly export sales report showed the US sales at 2,27,000 running bales (RBs, 500-lbs each).

The active continuation contract rallied higher as per our expectations. Cotton futures tested the rising channel resistance point as seen in the chart above and subsequently corrected lower. Strong resistance will be seen between 58-60c. Important support is now at 56.10c. As long as the rising channel support point at 52.65c holds expect cotton futures to march towards its next crucial resistance at 59.85c. Look for a good correction towards 53.65c in the coming week due to the indicators lying in heavily overbought conditions.

Elliot wave analysis points to a corrective A-B-C pattern, ending at 41.71c and a new impulse in progress. RSI is in the overbought zone indicating a correction to take place. The averages, in MACD are still above the zero line in the indicator suggesting underlying bullishness. Only a crossover of the averages below the zero line in the indicator will suggest a bearish reversal now. Current prices are above the short-term average of 8-day EMA at 57.08c and the 34-day EMA is at 52.81 cents.

Look for cotton futures to correct lower initially and then rise higher again.

Supports are, at 57.08 c, 56.15 c & 53.65 c. Resistances, at 58.75 cents, 60.50 cents & 61.96 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 necessarily that of his employer. This analysis is based on the historical price movements and there is a risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Sugar futures come under FMC lens — Sustained selling pressure sets off alarm bells

EU forced to reduce sugar subsidy

Fair demand at Kochi tea auction

Correction likely in NY cotton futures

Pepper prices continue to slide on selling pressure