The Hindu Business Line : NYCE cotton futures end higher

NYCE cotton futures finished higher on Friday on continued fund and speculative buying as fibre contracts held on to near-term highs buoyed by market fundamentals, persistent consumer demand and a weaker dollar. Lower cotton plantings this season and an expected increase in cotton demand from an expanding global economy should also keep price prospects bullish. Higher crude prices boosted the price of synthetic fibres, the main competitor of cotton, and higher consumption from an expanding world economy is seen buoying the values of fibre contracts. Meanwhile, the US Department of Agriculture weekly export sales report had little impact on cotton. The data showed the US cotton sales at 2,20,600 running bales (RBs 500-lb each), slightly above market expectations.

The active May contract is higher, in line with our expectations. Expect prices to continue heading higher towards the next technical target at 53.25 cents. A break higher from the recent trading range of 41-48c was the trigger and a daily close above 46.45 cents the long-term falling trend line resistance indicated a bullish reversal in the offing. Support should now be seen at 48.45 cents being the fractal top support point and as long as 46.50 cents holds the downside, we can expect cotton futures to test the next important resistance levels at 58.15 cents.

Elliot wave analysis points towards a complex corrective structure currently underway. As mentioned earlier, we are in a corrective A-B-C pattern, which now looks to have ended at 41.71 cents and a new impulse in progress. However, only a daily close above 55 cents will confirm that. RSI is in the overbought zone now indicating a correction to take place. The averages, in MACD are above the zero line in the indicator suggesting bullishness. Only a crossover of the averages below the zero line in the indicator will suggest a bearish reversal now. Current prices are above the short-term average of 8 day EMA at 50.01 cents and the 34-day EMA is at 47.20 cents. Look for prices to correct lower due to overbought conditions and then rise higher again. Supports, at 50.01 cents, 48.25 cents and 46.45 cents. Resistances at 51.25 cents, 53.25 cents and 55 cents respectively.

(The author is associated with the Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not necessarily that of his employer. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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