Commodity Calls

MCX Cotton outlook negative; upside limited

Gurumurthy K BL Research Bureau | Updated on November 28, 2018 Published on November 28, 2018

Cotton prices have been falling consistently over the last few weeks. The cotton futures contract on the Multi Commodity Exchange of India (MCX) has reversed sharply lower after making a high of ₹23,300 per bale in mid-October. The contract has tumbled over 8 per cent and is currently trading at ₹21,400 per bales.


The sharp fall below the key support level of ₹22,000 and ₹21,700 in the past week has strengthened the down move. The outlook is negative for the MCX-Cotton futures contract. The indicators on the charts are also negative. The 21-day moving average is on the verge of crossing below the 200-day moving average. This is a negative signal indicating that the upside could be limited.

The contract can fall to ₹21,000 in the short term. The levels of ₹21,700 and ₹22,000 will now act as a strong resistance and will cap the upside.

The medium-term view is also negative. A complex head and shoulders pattern which is a bearish reversal pattern is visible on the daily chart. The neck-line resistance is poised around ₹21,700. So, as long as the contract trades below ₹21,700 there is a strong likelihood of it tumbling towards ₹20,500 or even lower over the medium term.

Trading strategy

Traders with a medium-term perspective can go short at current levels and also on rallies at ₹21,600 and ₹21,700. Stop-loss can be placed at ₹22,200 for the target of ₹20,500. Revise the stop-loss lower to ₹21,300 as soon as the contract moves down to ₹21,100.

Note: The recommendations are based on technical analysis and there is a risk of loss in trading.

Published on November 28, 2018
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