The Hindu Business Line : Cotton may bounce higher

New York Cotton futures ended marginally lower on Friday on thin volumes and range trade. The summer slowdown took over for much of the session and cotton market participants ignored activity in grain markets that have been competing with cotton for acreage.

Gyrations in other commodity markets, have made investors sit on sidelines and see how market conditions develop in the coming weeks.

There was also no discernible reaction in cotton futures to the US Agriculture Department’s weekly export sales report which showed total US cotton sales at a robust 400,500 running bales (RBs, 500-lbs each), from 395,200 RBs in last week’s report.

The active contract bounced higher as expected, but is seen consolidating in a range giving no further clues. Though there are no clear signals of reversals, a potential rise to 61-61.50 cents looks likely in the coming sessions. 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 highly oversold zone indicating an upward correction in the offing. The averages, in MACD have gone below the zero line indicating a bearishness.

Only a cross-over of the averages above the zero line again will now indicate a bearishness.

Prices are below the short-term 8-day period and 21-day period EMA at 62.55 and 60.47 cents respectively indicating short-term bearishness. Therefore, look for cotton futures to bounce higher.

Supports are at 56.85, 56.20 and 53.78 cents. Resistances at 58.50, 59.75 and 61.50 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 pri ce movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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