NYCE cotton futures settled higher on speculative buying right before the market goes into delivery period next Tuesday after a holiday weekend. The cotton market will be closed Monday for the US President's Day holiday.
Demand side of the market remains strong, underpinning prices. USDA said US cotton sales hit 263,700 running bales (RBs, 500-lbs each), slightly above market expectations. The US Department of Agriculture will be releasing its annual potential plantings data on March 31 giving an idea of the possible crop size in the coming year.
As we have been maintaining, though fundamental outlook for cotton is dominated by record crops in the US and in other countries such as China, heavier fibre demand is seen helping to absorb the large amounts of cotton being harvested around the world. The recent rally in cotton futures can be mostly attributed to switch activity although the broad fundamentals remain bearish, such as high US production and a supply surplus.
The active March contract continued higher on switch activity. Recent resistance at 45c has been broken and prices have managed to close above that level too. This will act as a good support again. Crucial resistance at 46.45c being the falling channel resistance point has also been broken. Cotton should break out of the recent trading range of 41-48 either ways, to provide a clear direction from here. Support has held till now at 41-42c level, a low made on 2002. Favoured view is to look for another dip below the recent low at 41c or even lower towards 38c and then reverse higher. However, a daily close above 47c will negate our bearish outlook.
Elliot wave analysis points towards a complex corrective structure currently underway. As mentioned earlier, we are in a corrective A-B-C pattern which still looks to be in progress. The corrective pattern continues and the impulse we anticipated did not materialise. Only a daily close above 55c will confirm that we have begun a new impulse. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. It is showing a negative divergence, where prices are making a higher high not confirmed by a higher high in the indicator. The averages, in MACD are on the verge of going above the zero line in the indicator suggesting bullishness. Only a crossover of the averages above the zero line in the indicator will suggest a bearish reversal now. Current prices are above the short-term average of 8 day EMA at 45.30c and the 34-day EMA is at 44.89 cents. Look for prices to test the resistance levels.
Supports, at 43.50, 42.80 & 41.71c. Resistances, at 45.25, 46.70 & 48.25 cents respectively.
(The author is associated with the Multi Commodity Exchange of India. The views expressed in this column are his own and not 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.)