Cotton prices have been under pressure the last couple of weeks. The futures contract on the Multi Commodity Exchange (MCX) made a high of ₹23,320 per bale on June 11 and has reversed sharply lower from there. The contract tumbled over 6 per cent from this high to make a low of ₹21,770 last week on Thursday and bounced slightly higher to trade at ₹22,190 per bale.
The short-term view is negative for the MCX-Cotton futures contract. The recent reversal from the high happened from a crucial long-term trend resistance level. Though the contract has been consolidating around ₹22,000 over the last few days, any upmove in the near-term could be limited. Key resistances are poised between ₹22,350 and ₹22,650. An intermediate bounce to test these resistances in the near-term cannot be ruled out. But a strong break and a rally above ₹22,650 looks less probable.
A fall to ₹21,450, a key short-term support level, is likely in the coming weeks. A break below , though less likely, can drag the contract to ₹21,000. The region between ₹21,450 and ₹21,000 is a strong medium-term support level which could halt the current downtrend. A strong upward reversal from this ₹21,450-21,000 support zone will have the potential to take the MCX-Cotton futures contract higher to ₹23,000 levels.
Trading strategy
Short-term traders with high risk appetite can go short on rallies at ₹22,300 and at ₹22,500. Stop-loss can be placed at ₹22,700 for the target of ₹21,500. Revise the stop-loss lower to ₹22,100 as soon as the contract moves down to ₹21,850.
Note: The recommendations are based on technical analysis and there is a risk of loss in trading.