The Hindu Business Line : Cotton to test support levels

Cotton futures ended sharply lower on Friday along with other commodities, when the news about the investment bank Bear Stearns tapping the Federal Reserve for emergency cash slammed many commodity markets. Overall, fundamentals support cotton prices going forward. Rising grain prices support a long-term view of higher cotton prices because, as grain prices climb, farmers are more likely opt to plant wheat, corn and soyabeans instead of cotton for next season’s crop. The weak export figures from the US Department of Agriculture pressured any attempts to the upside. The USDA reported net US cotton export sales at 42,600 running bales for upland, a marketing year low.

Active March cotton futures contract moved perfectly in line with our expectations. After crossing our target of 84 cents, cotton futures extended even higher towards the 90s.

However, a correction from there has brought futures back below 80 cents. As mentioned in the previous update, we expect cotton futures to find resistance in the 84-87 cents zone now, for a correction towards the support levels. More bearishness is targeting 74.85 cents in the short-term. More downside can be expected if these levels fail to hold support and may see a fall towards 69 cents. Elliot wave counts indicate a third wave impulse, in progress, to have possibly ended, and a corrective fourth wave in motion. After this correction ends, we can expect the impulse to continue higher. Indicators are displaying a neutral picture.

RSI is in the overbought zone, indicating a correction. The averages in MACD are still above the zero line of the indicator, indicating bullishness to be intact. Therefore, look for cotton futures to test the support levels. Supports are at 78.15, 76.51 & 74 cents and resistances are at 80.52, 82.10 & 83 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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