The Hindu Business Line : Downward tweak in cotton

New York cotton futures ended lower on Friday on speculative selling and fund liquidation after the market broke through technical stop loss levels. Earlier, the eagerly awaited USDA planting intentions report had a muted reaction as the markets has already factored a lower acreage.

The US Department of Agriculture said in its annual planting intentions report that American farmers will sow 13.815 million acres to cotton in 2005 slightly below market expectations. Last year, US farmers planted 13.76 million acres to cotton. Going forward, markets will monitor spring cotton plantings in the US and China the world's largest producer and consumer.

Higher crude prices are also seen boosting cotton prices, as the price of synthetic fibres go up, the main competitor of cotton. Separately, USDA said in its weekly export sales data that total US cotton sales hit 1,68,500 running bales (RBs, 500-lbs each) above market expectations, re-enforcing confidence on the demand side.

Active May contract tested the resistance levels as expected but could not follow-through higher on lack of buying support at higher levels. Cotton futures have been steadily moving higher without any correction past five weeks. Prices found support last week at 49.55c being the Fibonnaci 38.2 per cent retracement level for the move from 41.71-54.20c. This also happens to be the 200-day EMA average point, and a test of this level again looks likely in the coming week. A daily close below 49.50c can take it to the next important support point at 48.25c. And as long as this level holds support, we can expect cotton futures to rise higher again.

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 this eventuality. RSI is in the neutral zone indicating that it is neither overbought nor oversold. It is also showing a negative divergence, where prices are making a higher not confirmed by the indicator. The averages, in MACD are still above the zero line in the indicator suggesting underlying 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 52.67c and the 34-day EMA is at 50.56 cents. Look for prices to correct lower and test the support levels.

Supports are, at 50.50, 49.55 & 48.31c. Resistances, at 53.15, 53.80 & 55 cents respectively.

(The author is associated with the Multi Commodity Exchange of India. 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. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Global wheat market seen in static phase

Downward tweak in cotton

Appachi Cotton keen on niche varieties this season

Chilli exports touch all-time high