The Hindu Business Line : Bullish trend seen in cotton

The US cotton market was shut on Thursday and Friday for Thanksgiving. The US cotton harvest is proceeding and market participants are keeping tabs on the pace of demand from countries like China, the world's top consumer of cotton.

The USDA has forecast US cotton exports in 2005/06 at 16 million (480-lb) bales, up from last month's forecast of 15.3 million bales. The recent conclusion of a textile deal between Washington and Beijing would stabilise the demand from China, which has emerged as the biggest consumer of cotton in the world and a key buyer of US cotton. Markets may consolidate before and shortly after the holiday weekend before players take a look at the market's situation next week.

The now active March contract is seen consolidating in a range preparing for the next move. Good support has been noticed at 51.75-52 cents level. The bigger picture weekly charts show a bullish triangle pattern in the making. As long as price stays above the key 200-day EMA level at 51.75 cents, expect cotton futures to move higher in the coming weeks. Only a daily close below 49.50 cents will signal a bearish signal in cotton futures. Major support is at 50.25 cents, a long-term rising trend line support point. Move above 55 cents directly on the other hand will take prices higher towards recent resistance at 58.25 cents or even higher towards 60 cents.

Elliot wave analysis points to a corrective pattern in progress, ending at 41.71 cents and a new impulse still in progress. The corrective second wave of that impulse looks to have ended at 46.10 cents. Daily close below 49.10 cents will change this outlook and lead to a sharp fall lower. RSI is in the neutral zone indicating that it is neither overbought nor oversold.

The averages in MACD are above the zero line in the indicator suggesting bullishness in the bigger picture. Current prices are above the short-term average of 8-day EMA at 52.34 cents and the 34-day EMA is at 52.48 cents. Therefore, look for cotton futures to test the support levels and rise higher.

Supports are at 50.25, 49.10 & 48.25 cents. Resistances at 54.05, 55 & 57.50 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 that 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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