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Gnanasekar T.

NYCE cotton futures ended with minor losses on Friday, with the weekly USDA export sales data adding to the depressed sentiment in the market. USDA said net upland cotton sales touched 61,300 running bales (RBs, 500-lbs), below trade expectations.

If US cotton sales persist at their current levels, questions would increase whether US cotton exporters can hit the USDA projection that US cotton sales would amount to 11.2 million (480-lb) bales in 2002-03. USDA, in its monthly production report, forecast US cotton exports at 11.2 million (480-lb) bales. That would just be a shade below the all-time record of 11.3 million bales sold in 1926.

Market now awaits the release of the monthly USDA supply-demand report on Thursday for some direction in prices in the near term. Trade buying at the lower levels is helping put a relatively good floor under the market. Earlier, the International Cotton Advisory Committee said its August estimates for world cotton production came to 88.5 million bales for the 2002-03 season, with consumption estimates at 95.2 million bales.

The active December continues to move in a range it has been moving for the last two months. A direction less market is in progress with prices in a never-ending consolidation. As mentioned earlier, very strong support can be seen at the 44c level indicating market conviction not to push the market below. The gaps noticed last week due to prices opening higher than the previous day's close, were filled when prices came down. A similar consolidation pattern occurred last year when prices were moving in a narrow range for a long time, before breaking out on the up side. As mentioned earlier, a long-term double bottom pattern is also visible on the chart targeting 55c in the near to medium term. A horizontal trend line at 44..35c would continue to give good support on the downside. A break of this downwards will be bearish for cotton and could target further lows from there.

Using Elliot wave analysis, this could still be part of an explosive move to happen possibly the third wave which has the maximum momentum. RSI continues to hover in the neutral zone indicating it is neither overbought nor oversold. The averages in MACD, is still below the zero line in the indicator, which is not conducive for prices to move up. Current prices are now below the short-term average of 9 and 50 day EMA respectively. In a consolidating market, moving averages tend to be going above and below the prices continuously. Only in a trending market moving averages give good signals to trade. Look for prices to consolidate and head higher. Important support levels are at 45.00, 44..35 & 43.10 cents. Resistances at, 46.90, 47.80 & 48.20cents.

(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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