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Gnanasekar T.

NYCE cotton futures closed higher on Friday on trade buying, speculative interest in the market and talk of purchases by buyers from Asia.

With the Christmas holiday season looming next week, dealings may thin out, as players retreat to the sidelines. The spark for the initial advance was provided by the USDA sales report.

USDA said net upland cotton sales hit 327,700 running bales (RBs, 500-lbs), well above expectations of 180,000 to 220,000 RBs. Shipments soared to a marketing year peak of 210,700 RBs against trade belief it would hover from 170,000-210,000 RBs. The US dollar's weakness too helped in boosting exports.

USDA also slashed its production estimates during the week. It put US cotton output at 17.38 million (480-lb) bales, well below trade expectations the figure would range from 17.6-17.7 million bales. Last month,

USDA pegged production at 17.82 million bales.

The active March contract now looks to be heading to the 50c range again. It is important that prices hold above this crucial level to continue the bullish streak. There is potential for it to test the horizontal trend line resistance at 52c. The market will get well supported at 48.90c and the crucial trend line support comes in at 47.60c.

Elliot wave counts are showing a corrective pattern in the medium term in progress again. The corrective wave "C" is still in progress targeting higher levels from here with a minimum target of 53 cents and beyond that at 56c. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD, came close to testing the zero line in the indicator last week only to take support there. A break of the zero line will confirm a downward reversal. As long as it stays above the zero line prices will continue their bullish streak. Current prices are below the short-term average of 9 day EMA showing weakness in the short term and the medium term average 50 day EMA is at 49.05c. Look for prices move higher. Resistances at 50.20, 51.95 & 53c. Supports at 48.90, 47.60 & 45.60c.

(The author is a trader at Scotiabank and the views expressed by him are his own and not necessarily of his employer. This analysis is based on the historical prices movements and there is risk of loss in trading.)

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