The Hindu Business Line : Cotton likely to move higher

Cotton futures ended lower on Friday on speculative liquidation and worries over a slowdown undermined the market before a holiday break. Concern that a recession could dent cotton demand and fears of an agricultural bubble given the recent surge in prices may be contributing to a crisis of confidence in the fibre market. US cotton acreage in 2008 is expected to be sharply lower as farmers switch to other high-yielding crops like soyabeans and wheat, which have rallied to multiyear highs.

Active March cotton futures contract rose higher in line with our expectations. Corrections should now find good support at 68.90 cents followed by 66.70 cents. As mentioned earlier, the bigger picture now hints at a test of 84 cents in the coming months. Crucial support is at 68.75 cents and as long as 65 cents remains undisturbed, we can expect prices to continue rising higher. Our favoured view expects cotton futures to find supports at the above mentioned levels, failing which we could visit the 58-60 cents zone again and then resume the climb higher again. This zone is also the breakout point which spurred a huge rally in cotton futures in the 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 68.75, 67 & 65 cents and resistances are at 71.50, 72.75 & 77 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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