The Hindu Business Line : NY cotton may test support level

New York cotton futures ended marginally higher on Friday as the market continued to dip lower on speculative selling. Fall in energy prices put some pressure on the cotton futures as it forms a part of the Reuters/Jefferies commodity index along with other commodities.

USDA said total cotton sales at 2,71,700 running bales(RBs, 500-lbs each), against 3,36,000 RBs last week. The Active July contract moved higher only to find strong resistance at higher levels. As expected weakness is seen persisting and prices are once again edging lower towards the psychological 50 cents mark.

As mentioned in the previous update, we believe prices could find excellent support at 50-50.70 cents and bounce higher from there sharply. However, a test of 48.75 cents cannot be ruled out on a daily close below 50c. Important resistance will be at 51.05 cents, followed by 52.76 cents being the trend line resistance point.

Only a daily close above 54.10 cents level will again inspire confidence among bulls and see prices extending higher towards 58 cents or even higher towards 60c in the coming months. 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.

Current prices are below the short-term average of 8-day EMA at 51.90 cents and the 34-day EMA is at 53.05 cents. Therefore, look for cotton futures to test the support levels in the coming week.

Supports are at 50, 49.38 and 48.25 cents. Resistances are at 51.05, 52.76 and 54.10 cents respectively.

(The author is the Director, Commtrendz Research, and also in the advisory panel of Multi Commodity Exchange of India Ltd (MCX). The views expressed in this column are his own and not that of MCX. 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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