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The cotton continuous futures contract on the Multi Commodity Exchange of India (MCX) has been in a short-term downtrend since it recorded a new high at ₹27,830 per bale (of 170 kg) early in August this year.
During second week of August, the contract slipped below the 21-day moving average and continued to trend below this average.
On Monday, the contract fell 1.6 per cent witnessing selling pressure and breached the key support at ₹26,000 as well as the 50-day moving average.
Extending the down-move, the contract had recorded an intra-day low at ₹24,820 and has trimmed the loss to 1.8 per cent in the last trading session and was trading at around ₹25,300 levels. Since the contract bottomed out at ₹15,000 in March 2020 it has been in a long-term uptrend.
Medium-term trend is also up for the contract. But the short-term trend is down. The contract trades well below the 21- and 50-day moving averages. It has an immediate support at ₹24,500; a decisive close below this base can pull the contract down to ₹24,000 and then to ₹23,500 over the medium-term.
On the other hand, near-term resistance is placed at ₹26,000 which can limit the upside for the contract. An emphatic upward breakthrough of ₹26,000 can witness a corrective up-move to ₹26,600.
To alter the short-term downtrend, the contract needs to break above ₹26,600. In that case, it can extend the up-move to ₹27,000 and then to ₹27,400 levels over the medium term.
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