The Hindu Business Line : Upward trend in cotton futures

NYCE cotton futures ended slightly lower on Friday, mainly on switch trade by market participants ahead of the first notice day next week. Any clear direction for prices can be seen only after the first notice day. Markets will also focus on the cotton plantings report due on June 30.

Earlier in the week, the New York cotton futures hit limit down, while both July and December registered fresh contract lows. Markets, however received support from the US cotton sales report. USDA, in its weekly export sales report, said combined US upland cotton sales hit 248,400 running bales (RBs, 500-lbs each), in the upper end of trade expectations of 175,000 to 275,000 RBs.

Cotton prices were expected to get a boost from dry weather in the cotton growing Western Texas region, however, news of the cotton crop being in good shape and news of expected rains in the growing areas added to the negative sentiment.

The active continuation contract touched a one year low on a strong sell-off. Support at 55c was easily broken and this could be a strong resistance level to watch for in the coming week. Prices are now languishing near the long-term falling trend line support point at 52.50c. As mentioned in our earlier up date inability to cross the resistances at 59.35c will see cotton future prices head to the next important support point. It is difficult to say if the low registered this week at 51.32c could be a temporary bottom. Only a move above 57c will reinforce a bullish scenario for cotton futures again.

Next very important support lays at 48.25c a long-term support point. Elliot wave analysis points towards a complex corrective structure currently underway. It is still difficult to call for a new impulse to begin from here unless the important resistance at 65c is overcome. RSI is now in the oversold zone indicating that a possible up ward correction can be seen this week. The averages, in MACD are below the zero line in the indicator suggesting underlying bearishness. Only a cross over of the averages above the zero line will confirm a trend reversal. Current prices are above the short- term average of 8 day EMA at 54.35c and the 34 day EMA is at 58.90 cents. Look for prices to consolidate and correct upwards. Resistances, at 55, 56.70& 59.35c. Supports, at 51.50, 50 & 48.25 respectively.

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

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