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Cotton futures finished on Friday at their highest level in five months on speculative fund buying and news that US cotton plantings in 2008 may fall to a 25-year low. Market was also buoyed by news that Memphis, Tennessee-based analytic firm Informa Economics forecast US 2008 cotton plantings at 9.185 million acres, below the 10.847 million acres sown in 2007.

The market paid little heed to the weekly export sales report by the US Agriculture Department. USDA said total US cotton sales hit 3,79,600 running bales (RBs, 500-lbs each), higher than market expectations.

Active March cotton futures contract rose sharply higher in line with our expectations.

As seen in the chart above, a bullish pattern is in the making. Break and close above 65.85 cents is a very bullish sign, which can now possibly target 75 cents on the upside. Crucial support is at 59 cents and as long as this level holds support, we can expect prices to consolidate and rise higher again.

Our favoured view expects cotton futures to find support in the 61 cents region failing which we could visit 59 cents and then resume the climb higher again. This zone is also the breakout point which spurred a huge rally in cotton futures past three months.

Elliot wave counts indicate a third wave impulse in progress. After this correction ends, we can expect the impulse to continue higher.

Indicators are displaying a neutral picture. RSI is in the neutral zone indicating that it is neither overbought nor oversold.

The averages in MACD are still above the zero line of the indicator indicating bullishness to be intact. Therefore, look for cotton futures to rise higher.

Supports are at 64.55, 63.25 & 61 cents and resistances are at 66.10, 67.50 & 69.00 cents.

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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