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Monday, Feb 11, 2002

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Columns - Technical Analysis


Cotton futures to head upwards

Gnanasekar T.

Cotton futures at the New York cotton exchange closed sharply higher amid active spread trades and speculative buying. The US Department of Agriculture on Friday released its monthly domestic and world supply/demand reports which was mostly neutral.

However, there is a sharp reduction in domestic usage to 7.30 million 480 pounds bales from its previous estimate of 7.7 million bales.

USDA also revised upward exports by 200,000 bales to 10 million sales while ending stocks increased to 8.8 million from 8.6 million bales.

The rise in prices during the week can also be attributed to the strong weekly exports sales and news of senates approval of a $275,000 per farm cap on agricultural subsidies. This could translate into lower cotton planted acerage in the US.

In other news, the National Cotton Council released its 2002 cotton plantings survey and pegged this spring's survey to 14.735 acres compared to 15.8 acres planted in 2001. Based on this acreage NCC is estimating a cotton crop of 17.1 million bales, compared with 20.08 million bales estimated for the current crop.

Meanwhile, the Cotlook A index was slightly higher at 43.15 cents per pound Friday.

March contract, which is due to expire next week noticed good amount of switch activity to May with good volumes to back the rally this week.

As expected last week, we saw prices testing the resistance levels. It is on the verge of breaking the all important 38.70c resistance.

Technically, chances of breaking this level up wards remain strong. Unless, this level is broken decisively a clear trend will not emerge.

The structures as per Elliot wave analysis has not changed much as we are still in a narrow range and only a break of this range can give some clues to future movements.

A break of the 34c level down could however alter the Elliot wave structures and can have a negative impact on prices.

RSI continues to be in the neutral zone indicating that it is neither overbought nor oversold.

The averages in MACD, went below the zero line in the indicator and has got back into the positive once again.

A crossover below the zero line will have bearish implications. Current prices are well above the short-term 9 day EMA and the 50 day EMA signalling a positive outlook from here. Look for the prices to break the resistance level and head higher. Important support levels are at, 37.60,36.85 & 34.80. Resistances, at, 38.65,39.30 & 40.50 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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