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Monday, Mar 15, 2004

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Agri-Biz & Commodities - Technical Analysis


Cotton futures seen falling

Gnanasekar T.

NYCE cotton futures ended lower on Friday, on speculative selling with trade buying noticed at the lower levels which helped limit further losses. Cotton contracts continue to move in a sideways range till the release of any market moving news. The USDA's planting intentions report will be released on March 31. This report is expected to give an idea of the cotton acres that are likely to be planted. Next week's USDA export sales report will also provide some direction.

Meanwhile, the USDA in its outlook on Indian cotton crop lowered its 2003-04 cotton production estimate to 16.1 million bales (170 kg) on reduced area estimates. Mill consumption has also been revised lower to 14.2 million bales. The USDA's weekly export sales report showed US net upland cotton sales at 106,700 running bales (RBs, 500-lbs each), on the low side of trade expectations. US cotton export shipments stood at 316,400 RBs. While China, whose buying last year propelled prices to their highest level since late 1995, bought only 5,400 RBs, a total of 165,500 RBs of cotton.

The active May contract is moving on expected lines. The neckline point at 66.35c gave way and a consolidation is seen at the current levels. Another minor support will be at 63.85c a falling trend line support point. The head and shoulder pattern we have been talking in our earlier up dates with the neckline point at 64.65c seems to have been broken. This is a bearish indication and as per the head and shoulder theory we should see cotton prices go to as low as 50c in the medium term to long term. However, any bullishness or reversals can be seen only on a close above 71c. Till then we will stick to the bearish view.

Using Elliot wave analysis a wave C is in progress as long as 76c is not broken on the higher side. The move from the peak at 84.25 to 65c is possibly a corrective wave A and the subsequent pullback to 76.20c is a wave B. The current move should be a wave C targeting close to 58c or even lower. RSI moved lower and is currently in the neutral zone indicating that it is neither overbought nor oversold.

The averages, in MACD are still below the zero line in the indicator. Only a break above the zero line will signal a reversal in trend. Current prices are lower than the short- term average of 9 day EMA at 66.70c and the 50-day EMA is at 69.40cents. Look for prices to consolidate and move lower. Resistances at, 66.55, 68.20 & 71c. Supports at 63.85, 61.50 & 58c respectively.

(The author is a Mumbai-based analyst who tracks the global commodities markets. This analysis is based on the historical price movements and there is risk of loss in trading.)

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