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Monday, Feb 18, 2002

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Columns - Technical Analysis


Cotton futures to firm up

Gnanasekar T.

Cotton futures at the New York cotton exchange closed sharply lower amid active fund liquidation and speculative selling pressure gripped the market after prices touched a high of 39c. The market is finding it hard to recover from the blow it suffered on Wednesday where it tumbled more than 3 cents in a single session.

The fall was attributed to the hedging and speculation report that showed specs were a net long 35.8 percent of the open interest. There was big stop loss selling, the biggest seen in the past few months. There was trade selling, liquidation selling and options related selling to add to the woes.

Earlier gains during the beginning of the week may have been helped by thoughts that the farm bill passed by the senate, which includes a provision to cap subsidies per farm, could reduce the acreage producers will plant in cotton. Scale down buying however, was noticed at the lows at 35 c level and as usual cotton has gotten into the narrow range based price movements.

Meanwhile, the Cotlook A index was unchanged at 42.95 cents per pound on Friday. March contract, witnessed speculative sell off and long liquidations as prices found hard to cross the resistance level at 39c. However, support is still holding on at 35c.

A break below this level will have bearish implication on cotton futures in the near term. The structures as per elliot wave analysis haven't changed much as we are still in a narrow range and only a break of this range can give some clues to future movements. 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 and are proceeding towards the oversold zone.

A correction up wards could happen due to this next week. However, RSI has the tendency to stay in the overbought zone for a while before turning up. The averages in MACD, is still above zero line in spite of the huge fall in prices which is a good sign.

A crossover below the zero line will have bearish implications. Current prices are well below the short-term 9 day EMA and the 50 day EMA again. Look for prices to get supported at the important support levels. Important support levels are at, 35.30,34.80 & 33.90. Resistances, at, 36.30, 36.76 & 38.45 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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