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NY cotton futures ended Friday at a seven-week low, due to speculative fund selling sparked by the credit crisis and worries over demand as envisaged in the USDA Demand/supply report. The monthly supply/demand report of the US Agriculture Department, the first of the 2007/08 marketing year (August/July), raised some concerns after it sliced the estimate for China’s cotton imports to 16 million (480-lb) bales from 16.5 million in last month’s report. A downturn in world economy due to the ongoing crisis could have a lasting effect on cotton demand going forward.

The active contract rose fell lower in line with our expectations. There is now a good possibility of filling the gap in the 58 cents zone from where it can rise higher again. It also happens to be the fibonnaci retracement level. Resistance will now be seen in the 63-65 cents range. And as long as 66.50/70 cents caps upside attempts, we can expect cotton futures to correct lower. As we have been maintaining, a re-test of 70 cents seen in 2004 is on the cards. The bigger picture looks bullish and is set to scale new peaks after prices broke above the 60 cents range convincingly. 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 cross-over of the averages above w the zero line again will now indicate bearishness. Prices are above the short-term 8-day period and 21-day period EMA at 63.07 and 63.60 cents respectively indicating short-term bearishness. Therefore, look for cotton futures to test the support levels.

Supports are at 60.75, 59.40 and 58 cents. Resistances are at 62.50, 63.45 and 65.75 cents respectively.

Gnanasekar T.

(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.)

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