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Monday, Mar 14, 2005

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Agri-Biz & Commodities - Technical Analysis


Cotton futures may slip lower

Gnanasekar T.

New York cotton futures settled on Friday close to a 9-month high on sustained speculative buying as the overall bullish mood in commodity markets is seen keeping fibre contracts buoyant.

Trade buying too gave the market a good boost. Markets took note of news of rising concern by the US officials, regarding a significant increase in clothing imports from China and that they will consider imposing restrictions if the US market is being disrupted.

In its monthly supply-demand report, USDA raised its estimate for world cotton production in 2004-05 to 117.71 million (480-lb) bales from 116.72 million last month. World cotton ending stocks were increased to 47.55 million bales from 46.74 million bales in the last report. The USDA weekly export sales data said US cotton sales hit 205,900 RBs, sharply higher than expectations, an important catalyst for this week's rally.

Active May contract surged higher, as per our broad expectations. Cotton futures have been steadily moving higher without any correction. Prices are moving in a rising channel and support will be at 52.15c. Strong resistance will be seen at 56.10c an important resistance level for cotton futures in the near-term. Corrective pullback is expected from there.

A break higher from the recent trading range of 41-48c was the trigger and a daily close above 46.45c the long-term falling trend line resistance indicated a bullish reversal in the offing. Elliot wave analysis points to a corrective A-B-C pattern, ending at 41.71c and a new impulse in progress. However, only a daily close above 55c 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 51.73c and the 34-day EMA is at 48.45 cents. Look for prices to test the resistance levels and correct lower subsequently.

Supports, at 52.15, 51.73 & 49.30c. Resistances, at 53.80, 55 & 56.10 cents 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 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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