New York cotton futures ended lower on Friday pressured by the USDA report, which forecast a rise in the US cotton plantings.
The Active May contract headed lower testing the support levels as expected. As mentioned in the previous up date, price structures favour a downtrend in the short-term. Prices are further expected to edge lower as resistance at 53.75-90 cents failed to inspire confidence in a possible recovery.
Important support is at 51.50-52 cents and a break here could even take it lower to the psychological 50 cents levels, before we see the up trend resume. Elliot wave analysis points to a corrective pattern in progress, ending at 41.71cents and a new impulse still in progress. The corrective second wave of that impulse looks to have ended at 46.10 cents.
It now looks to have begun the big impulsive third wave move, which we have been expecting for a while. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD have gone below the zero line in the indicator suggesting a bearish reversal. Only a cross-over of the averages above the zero line will indicate clear bullishness.
Current prices are below the short-term average of 8-day EMA at 53.15 cents indicating bullishness and the 34-day EMA is at 54.15 cents. Therefore, look for cotton futures to test the support levels and possibly bounce higher.
Supports are at 51.50, 50.75 and 49.75 cents. Resistances at 53.75, 55 and 56.50 cents respectively.
(The author is associated with the Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not that of his employer. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at firstname.lastname@example.org.)