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New York cotton futures ended lower mostly in switch trades as market players got out of the active May contract into back dated contracts. Weather will play a key role now and market participants are keeping a watch on the early storms sweeping across the US plains.

On a fundamental level, the focus of the trade is currently on spring growing conditions in the US cotton belt over the next few weeks. Separately, there was little reaction to the weekly export sales report from the US Agriculture Department of Agriculture. USDA said total US cotton sales hit 327,500 running bales (RBs, 500-lbs each), from 394,700 RBs in last week's report.

The active May contract headed lower after the recent consolidation. Important support at 52.15 cents, a trend line support point gave way leading to a fall. Furthermore, another important support level at 51.50 cents has also been broken indicating weakness in the near-term.

Important support will be at 50.05 cents on the downside and an unexpected break below this level could once again lead prices lower towards 47 cents. However, favoured view expects the current fall to find support in the 50 cents region and slowly edge higher again towards 55 cents in the coming weeks or even higher.

In the big picture, Elliot wave analysis still points to a corrective pattern in progress and a break above 60.52 cents 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 are 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 52.03 cents indicating short-term bearishness and the 21-day EMA is at 52.78 cents. Therefore, look for cotton futures to test the support levels initially and then rise higher again.

Supports are at 51.25, 50.75 and 48 cents. Resistances are at 52.15, 53.50 and 54.08 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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