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Gnanasekar T.

NYCE cotton futures closed on Friday near its lows on steady speculative pressure and long liquidation. With certificated stocks rising and export demand for the US fibre lagging, cotton broke down wards as it crashed through the lower end of its 44-50 cents trading band, a range that has held for the past three months.

In spite of a friendly USDA monthly supply-demand report and a weekly USDA export sales data, which showed net upland cotton sales for the week at a marketing-year high could not help ease the selling pressure. In the weekly USDA export sales data , US net upland cotton sales soared to a marketing year high of 364,600 running bales (RBs, 500-lbs), against trade expectations it would range from 50,000-100,000 RBs.

US cotton export sales are still behind the pace needed to hit the USDA target of 11.2 million (480-lb) bales. They also point to the imminent start of the U.S. cotton harvest which is set to get under way at full bore across the cotton belt and would likely exert pressure on fibre prices. The monthly USDA production report on the other hand might show an increase in US cotton production from last month's estimate of 18.44 million (480-lb) bales.

The active December contract continued its bearish run this week breaking the crucial support level at 44..35c, thereby allowing prices to test further lows from here. After the break of the crucial support level, we could be heading into another round of range-bound trading between 40 and 44 cents. Good support now can be noticed at 42.46c on the down side. This break of 44.35 has made the long-term double bottom pattern to fail. A realistic target could now be the 40.50c level on the downside which apparently was a support it held for seven months.

With the current breakout on the downside, the Elliot wave count needs to be reviewed and next week's price action could give some insight into the possible wave counts from here. RSI has entered the oversold zone and due to this we could see a minor correction up wards next week. The averages in MACD, now continues to hover below the zero line in the indicator, which signals a change in trend in the near term. Current prices are below the short-term average of 9 EMA and the 50-day EMA is now at 44.65. Look for prices to consolidate in a narrow range and test the support levels. Important support levels are at 43.00, 42..46 & 40.50 cents. Resistances at, 43.70, 44.35 & 45.60 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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