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Monday, May 13, 2002

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Cotton market focus on US, China

Gnanasekar.T

COTTON futures on the New York Cotton Exchange settled higher Friday on bullish supply/demand report released earlier by the US Department of Agriculture. On the 2001-02 crop, the USDA left the US production unchanged at 20.3 million 480-pound bales, increased exports by half a million bales to 11.0 million and raised domestic consumption by 100,000 bales to 7.6 million bales. As a result, ending stocks— or the remaining stocks at the end of the crop year— were slashed by 600,000 bales to 7.70 million bales.

The 2002-03 domestic production is projected at 17.8 million bales, based on the 14.77 million-acre area. Domestic mill use is projected at 7.8 million bales, a 2.6 per cent increase from the current season, reflecting anticipated growth in retail cotton consumption as economic conditions improve.

Exports are projected at 11 million bales, the same as the revised 2001-02 level, these are the largest exports since 1926-27, according to the USDA. In its weekly report, the USDA said that net upland sales totaled 181,300 bales, 4 per cent above the previous week and shipments totaled 211,800 bales, or 14 per cent above the previous week. Market will now try to focus on weather and planting conditions affecting the world's largest cotton producers: the US and China.

July contract made an impressive rebound towards the end of the week breaking important resistance levels and triggering sell stops on the way. A clear break from the channel on the up side coupled with the break of an important trend line resistance at 35.45 cents has given hopes of a rebound in prices from here. A gap has also been created with prices opening higher than the previous days high, and this can prove to be a strong support level at 34.50 cents. However, medium term to long-term outlook still remains unchanged with a correction taking place in a the bigger picture.

Using Elliot wave analysis reveals a corrective phase still in progress in the bigger picture. However, a change in the wave structures seems to have started with a possible continuation of the fifth wave in the making. This view will be confirmed, if prices go below the 31.75 cents level. RSI after staying in the oversold zone for a while rebounded back into the neutral zone. A positive divergence in RSI also helped prices rebound up wards. However, the averages in MACD, are below the zero line in the indicator. Only after it goes above the zero line a clear bullish trend could emerge.

Current prices are above the short term average of 9 and the 50 day EMA is at 37.10. Look for prices to head higher. Important support levels are at, 34.90, 34.30 and 33.15 cents. Resistances at, 35.95, 36.60 and 37.10 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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