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NY cotton may hover around 30 cents area

Gnanasekar.T

NYCE cotton futures started the week positively with the spot July contract rocketing to a five week high as Hohenberg a trading firm stopped the bulk of July deliveries. Hohenberg could be long 85 per cent of open interest for the spot contract, leaving little liquidity for commercial shorts needing to exit before expiration. This was followed by an unexpectedly low monthly consumption report which again saw prices fall back below the 43 cents area. Consumption was expected to be bad and get worser.

The dollar looked as if it was blowing out to the upside, which could leave cotton gyrating until the dollar established some stability. However, minor support was witnessed, on news of strong weekly export sales and, a marketing high for weekly shipment s. Improving weather outlooks for both the US and Chinese cotton crops also were negative factors. USDA surprised the trade with a nearly 700,000-acre increase in estimated 2001 US plantings, compared with its March survey. Cotton prices as measured by t he Cotlook A Index was unchanged Friday at 46.85 cents with the lower grade B Index rising 15 points to 45.15 cents.

While prices ended lower on Friday, they did end higher overall for the week. July even ended higher for the month after staging a strong rally on Monday. Very little could be read from the light volumes on Friday. But there was a sense of agreement that the market has absorbed a lot of negative supply and demand news this week.

As mentioned earlier cotton could have a rather lengthy bottoming process. It could spend the next couple of months in the mid-to upper 30 cents area, lingering a minimum of two to three months at its lows. The 1986 low of 36 cents seems imminent for the December contract. There is almost an unanimous view that the 15-year continuation low of 37.50 cents, set by July on June 20,2001 to be a low for this move. Though October and December may attempt to match this low and could set new contract lows, ther e is doubt that they would fall further than the low in July.

RSI is back into the neutral territory with a minor positive divergence, which helped price to go above 42 cents last week. MACD is in the verge of crossing over on the down side and is still below the zero line in the indicator confirming a downtrend. H owever, MACD is also showing signs of a minor positive divergence. The two exponential averages are still above the prices. A positive indication of a reversal may happen when prices cross the two averages upwards. Therefore, there are good chances of a up ward reversal in the coming weeks. Important support levels are at 42.30, 40.93 & 39.80 cents. Resistances at 43.40, 44 and 44.70 cents.

(The author is a Chennai-based technical analyst who tracks the international commodities futures markets. This analysis is based on historical price movement of the commodity concerned. There is risk of loss in trading. )