The Hindu Business Line : NY cotton futures likely to rise

NEW York cotton futures ended lower on Friday, as most market participants remained on the sidelines ahead of the important US Department of Agriculture's monthly supply/demand report, when the first detailed forecasts of the 2005/06 marketing year (August/July) become available. Fundamentally, the cotton trade is keeping an eye on the development of large cotton crops in the major producing nations, China and the US. The focus of the USDA report next week will be on the likely size of the US cotton crop and what kind of demand will likely emerge from China, the world's top consumer of cotton.

China is expecting a cotton shortfall of close to 3 million tonnes this year according to the China Securities Journal. Earlier this week, the International Cotton Advisory Committee Secretariat said it expected China to import a record 2.8 million tonnes of cotton in 2005/06, more than double the previous year's estimate.

The Active December contract is stuck in a narrow range waiting for a clear direction. Resistance will be strong in the range of 53.50-54c. Initial support will be seen at 51.25-30c being the 200-day ema point.

Important support is at 49.15c, and a daily close below this level will take prices lower towards 46.40c another crucial long-term trend line support point as seen in the chart above.

However, a daily close above 54.20-55.00c will negate our bearish expectations. Elliot wave analysis points to a corrective A-B-C pattern, ending at 41.71c and a new impulse in progress. The second wave of that impulse looks to have ended at 46.10c. We could possibly be in the third wave of the impulse presently. A daily close below 46c will negate this possibility.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD are below the zero line in the indicator suggesting bearishness. Only a crossover of the averages above the zero line in the indicator again will trigger a bullish reversal.

Current prices are above the short-term average of 8-day EMA at 52.15c and the 34-day EMA is at 52.17 cents. Therefore, look for cotton futures to test the support initially and then rise higher.

Supports are, at 51.25, 50.65 & 49.10c. Resistances, at 52.72, 53.85 & 55.25 cents respectively.

(The author is associated with The Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not necessarily that of his employer. This analysis is based on historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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