New York cotton futures ended higher on Friday, lifted by short-covering on fears about dry West Texas growing conditions. Many market participants were troubled by the situation with dry, hot and windy weather forecast for the West Texas and US Southwest cotton growing regions. The Active July contract tested the support levels as expected. Prices tested the potential support level near the 48.50 cents and retraced higher from there. Immediate resistance is at 51.15 cents followed by 52.20 cents. A move above 52.78 cents will see prices headed further higher above the 53 cents level being the 200-day EMA level. Elliot wave analysis points to a corrective pattern in progress, ending at 41.71 cents and a new impulse still in progress.
The corrective second wave of that impulse looks to have ended at 46.10 cents. A move above 58 cents will confirm the beginning of the third wave move. However, a fall below 45 cents will alter the wave counts and put cotton futures in the bearish path, which we do not favour at this point.
RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD are below the zero line in the indicator suggesting a bearish reversal. A positive divergence seen in indicators, hint at a bullish reversal in the offing. Only a cross-over of the averages above the zero line will indicate clear bullishness.
Current prices are above the short-term average of 8-day EMA at 50.40 cents, indicating bullishness and the 34-day EMA is at 51.35 cents. Therefore, look for cotton futures to rise higher.Supports are at 50.10, 49.65 and 48.50 cents. Resistances at 52.80, 53.10 and 54.65 cents respectively.
(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 email@example.com.)