The Hindu Business Line : Cotton futures may test support, rise

New York cotton futures ended marginally lower in a thin range as market participants awaited next week's potential plantings report from the USDA. UK based Cotlook sounded more pessimistic.

Liverpool-based Cotton Outlook (Cotlook) said output in China, the world's top producer and consumer of the fiber, will increase 200,000 tonnes to 6.7 million tonnes in 2007/08. But China's consumption will drop by 250,000 tonnes to 10.75 million tonnes. It also expected world production to rise to 25.486 million tonnes in 2007/08 and consumption to fall lower.

The active May contract is consolidating in a broad range presently. A corrective fall is seen currently with strong supports at 52.50-70c levels. Only a break above resistance at 55-55.46c will trigger a sharp rise to 58c, followed by the psychological resistance at 60c.

As seen in the bigger picture chart above, a long period of consolidation will give way a sharp rise higher. As long as 51.30c holds any attempts to decline, we see a bullish market ahead for fiber contracts. In the big picture, elliot wave analysis still points to a corrective pattern in progress and a break above 60.52c will give rise to a new impulse.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD have gone below the zero line indicating bearishness. Only a crossover of the averages above the zero line again will now indicate a bullish reversal.

Current prices are below the short-term average of 8 day EMA at 53.43c indicating short-term bearishness and the 34-day EMA is at 53.60c cents. Therefore, look for cotton futures to test the support levels initially and then rise higher again.

Supports are at 52.70, 51.65 and 50.85 Resistances are at 54.05, 55.10 and 56.50 cents respectively.

(The author is the Director of 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.)

Gnanasekar. T

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