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Gnanasekar.T

COTTON futures on the New York cotton exchange closed higher mostly on a speculative lead rally coupled with technical factors. Doubts persist in the minds of traders on the kind of impact the weather has had on the crop.

In other news, the International Cotton Advisory Committee on Friday estimated worldwide 2002-03 cotton consumption at 95.1 million 480-pound bales, or 20.71 million metric tonnes.

This is up from the previous season's 92.66 million bales but unchanged on the previous estimate.

The ICAC pegged world cotton production at 88.5 million bales, or 19.27 million metric tonnes, down from the previous 88.8 million tonnes, compared with the record high of 98.8 million bales estimated for the 2001-02 season. ]

The weekly USDA export sales report had no impact on business. USDA said net upland cotton sales reached 115,500 running bales (RBs, 500-lbs), and in the upper end of trade expectations it would range from 60,000-120,000 RBs.

Shipments stood at 121,500 RBs, compared to market belief it would lie between 40,000 to 100,000 RBs. The market will now turn its focus to the weekly USDA crop condition report on Monday and the monthly USDA supply/demand report being released on November 12.

The active contract as per expectations moved higher. Support for cotton now lies at 46.20 cents on the down side, which is a previous fractal top and a horizontal trend line support.

A break of this can lead to a fall up to 43 cents.

The channel in which prices were moving for a long time broke out and this could be the beginning of a trend reversal.

A possible flag pattern is also noticed, which is a continuation pattern in the direction of the current trend, which is bullish.

Using elliot wave analysis we are in a corrective phase in the bigger picture which is targeting 55 cents in the medium term to long term.

A double bottom pattern is also noticed which is very bullish in nature and is also targeting around 55 cents levels. The indicators are also bullish now.

RSI is entering the overbought zone and a minor negative divergence is noticed where prices are making a higher high which is not confirmed by a higher high in the indicator.

A correction could take place next week due to this and then prices can head higher again.

The averages in MACD are comfortably above the zero line in the indicator and as long as it stay above the trend will remain intact.

Prices are currently above the moving averages of 9 and 50 day EMA respectively.

Look for prices to correct lower initially and head higher again. Supports are at 45.95, 44.86 and 43.90 cents.

Resistances at 47.10, 48.65 and 49.82 cents respectively.

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

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