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Gnanasekar T.

NYCE cotton futures ended higher on Friday on continued weather concerns and the kind of impact it has had on the crop. After a series of weather inflicted damage to prime US cotton crops, by a hurricane, tropical storm, and successive rain storms, cotton players are all trying to make their best guess at the extent of the impact on the cotton.

On Friday, US Census Bureau issued monthly figures that show consumption well below projected annualised supply. USDA had initially projected such huge cotton crops and had over estimated export and consumption figures, that even a lower assessment of the standing crop would still mean over supply.

The market will have to wait until early November for the USDA's monthly cotton report for a more accurate reading of the situation. Elsewhere, Cotlook said on Thursday that it increased its forecast for world raw cotton production in 2002-03 by 200,000 tonnes to 19.409 million tonnes, based on China' revised crop projections.

While Cotlook raised its forecast, the 2002-03 world crop is still expected to be smaller than last year. The active December contract moved higher making higher highs and higher bottoms a sign of a good up trend in progress. The channel in which it has been moving crossed decisively at 45.10 cents and broke the important trend line resistance there.

Technically, prices are headed to the next important resistance level at 49.80 cents, which was the previous top. The long-term target would still be 55 cents on the up side. This will be achieved after a series of price corrections.

Elliot wave counts are showing a corrective pattern in the medium term in progress again. We are possibly in the end of the `B' wave a corrective pattern and the `C' wave has started with a wave equality target, of 55 cents in the medium term. The indicators showed positive divergence last week and this helped in a rally in prices.

RSI is close to the overbought zone and a minor correction can be expected. The averages in MACD, have crossed the zero line in the indicator and has turned bullish. Current prices are way above the short term and medium term averages of 9 and 50 day respectively.

Look for prices initially correct downwards and move higher again. Resistances at 47, 48.25 and 49.10 cents. Supports at 45.35, 44.82 and 44.50 cents.

(The author is a Chennai-based technical analyst who tracks the international commodities futures markets. This analysis is based on the historical prices movements and there is risk of loss in trading.)

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