The Hindu Business Line : Cotton futures to consolidate

Cotton futures at the New York cotton exchange managed to close lower giving up gains by the close after reaching a high of 38.50c during the week. The market showed some weakness due to the bearish domestic and international supply/demand cotton report released by the US Department of Agriculture.

USDA raised the cotton production and ending stocks. Cotton ending stocks are projected at 8.6 million 480 pound bales in 2001-02 compared with USDA's previous forecast of 8.4 million bales. In addition carry over stocks were increased to 44.08 million from the earlier figure of 43.51 million bales. It also raised cotton production slightly to 20.084 million bales from the previous month's estimate of 20.064 million bales.

World cotton production too was increased to 96.68 million bales from the previous estimate of 96 million bales. A surprising factor however was the USDA's lowering of Pakistani production by 400,000 bales to 7.6 million. Though the numbers did not take the market by surprise, it still was a negative report. The 2002-02 Cotlook A index an average of the world's lowest high-grade cotton was unchanged at 43.40 cents per pound on Friday.

March contract had a spirited rally this week only to shed the gains by the closing of the week. As mentioned last week a triangle pattern breakout has given hope for further highs to happen in the weeks to come. Good support is expected at 35.60c on the downside and the 34c level should provide further support failing which we could see a test of 32c.

The structures as per elliot wave analysis suggests that we could be in the beginning of a C wave in the bigger picture which has the potential to test 48c in the medium term. RSI continues to be in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD are very close to the zero line in the indicator and as long as it continues to be above the zero line there is no cause to worry. Current prices went above the short-term 9 day EMA and the 50 day EMA is now at 36.55. The 50 day EMA should provide excellent support in the week's to come. Look for prices to consolidate before trending higher. Important support levels are at, 36.35,35.60 & 34.80. Resistances, at, 37.60, 38.10 & 40 cents.

(The author is a Chennai-based technical analyst who tracks the international commodities futures markets. This analysis is based on historical price movement of the commodity concerned. There is risk of loss in trading.)

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