The Hindu Business Line : NY cotton futures range-bound

NEW York cotton futures ended easier on Friday, on modest speculative buying with markets expected to be range-bound for the next couple of weeks, while looking toward the release in two weeks of the US Department of Agriculture's monthly supply/demand report, when the first detailed forecasts of the 2005/06 marketing year (August/July) become available.

Fundamentally, the cotton trade is keeping an eye on the development of large cotton crops in the major producing nations, China and the US. The USDA's weekly export sales report provided little excitement as the robust figures came at the end of the 2004/05 marketing year.

It said the US cotton sales amounted to 2,69,200 (500-lb) running bales, higher than market expectations.

The active December contract moved higher as per our expectations. Resistance will be strong in the range of 53.50-54c. Important support is at 49.15c, and we saw cotton futures bouncing higher from this level recently. Daily close below this level will take prices lower towards 46.40c another crucial long-term trend line support point as seen in the chart above. However, a daily close below 54.20-55.00c will negate our bearish expectations.

Elliot wave analysis points to a corrective A-B-C pattern, ending at 41.71c and a new impulse in progress. The second wave of that impulse looks to have ended at 46.10c. We could possibly be in the third wave of the impulse presently.

A daily close below 46c will negate this possibility. RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages, in MACD have gone below the zero line in the indicator suggesting bearishness.

Only a crossover of the averages above the zero line in the indicator again will trigger a bullish reversal.

Current prices are above the short-term average of 8-day EMA at 51.26c and the 34-day EMA is at 52.10 cents.

Therefore, look for cotton futures to move in a range.

Supports are, at 51.25, 50.65 & 49.10c. Resistances, at 52.72, 53.85 & 55.25 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 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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