The Hindu Business Line : Bullish reversal for cotton?

NYCE cotton futures ended lower on Friday, due to options related selling. Overnight falls in cotton prices in China, which has emerged as a major buyer of the US cotton, added to the negative sentiment felt in futures.

China, whose purchases powered cotton prices to their highest level last October since late 1995, remained a steady buyer of fibre. According to the latest USDA report, China has already bought 4.801 million RBs of the US upland cotton, above the 1.700 million RBs it purchased at this time last year.

Markets will now be looking toward the weekly USDA export sales report next week to check on the level of US upland cotton shipments as a government marketing program is expected to help boost exports.

The USDA said combined US net upland cotton sales at 1,52,900 running bales (RBs, 500-lbs each), against trade expectations it would range from 1,30,000 to 2,00,000 RBs. Shipments hit 1,88,700 RBs, sharply below trade expectations in the range of 2,80,000 to 3,50,000 RBs.

The active July contract is consolidating preparing for a break. As mentioned in our previous up date there is a double bottom formation in the charts, which is quite bullish for Cotton futures. As long as support at 62.20c holds we can expect a break on the up side targeting 67c and beyond. The first sign of resumption of bullishness will be seen on the break and a daily close above 66c, an important resistance level. This level was tested last week, however, it closed lower than that. Another important resistance level after that will be at 67.65c a falling trend line resistance point and the 38.2 per cent Fibonacci retracement level for the move from 84.80c to 56.65c.

Using Elliot wave analysis, we should now be looking for signs of a new impulse to begin from here assuming that wave "C" got over at 56.65c. A move above 66c will confirm this possibility.

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. This was followed by a sharp move lower as wave "C" to 56.65c. RSI is now in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD have gone above the zero line in the indicator suggesting a bullish reversal in the offing.

Current prices are above the short-term average of 8 day EMA at 63.50c and the 34 day EMA is at 63.20 cents. Look for prices to move higher and test the resistance levels. Resistances at 66.25, 67.55 & 69.05c. Supports at 63.85, 62.25 & 59c respectively.

The author is associated with the Multi Commodity Exchange of India (MCX). The views expressed in this column are his own and not of his employer. This analysis is based on the historical price movements and there is risk of loss in trading.

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