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Agri-Biz & Commodities - Technical Analysis


Bearish trend in NY cotton futures

Gnanasekar T.

NEW York cotton futures closed higher on Friday on speculative buying as cotton exports showed robust growth. However, option related sales kept prices from breaching higher.

The USDA said the US cotton sales at 4,59,500 running bales (RBs, 500-lb each), is much better than trade expectations. This week's export sales data highlighted China as a large buyer of the US cotton.

Lack of any major fundamental developments would continue to keep prices in a range in the forthcoming week with a bias towards the downside, due to prospects of a huge US cotton crop.

The USDA upped its estimate of world cotton production in 2005/06 to 109.79 million (480-lb) bales from 108.60 million estimated last month. World consumption was at 112.02 million bales from 111.76 million and ending stocks to 49.81 million from 48.95 million bales.

The USDA also raised its US cotton exports to 15 million from 14.5 million and increased ending stocks to 7.0 million versus 6.7 million bales.

The Active December contract pulled back higher as expected. However, the rise from the support levels has not been very convincing and lower prices from here looks likely.

Trend line support at 47.80c held well but only a move above 51.15c will increase the possibility of bullishness in cotton futures, also being the important 200-day EMA point. Failure to hold support at 47.80c can take it even lower to 45.95-46.00c another crucial long-term trend line support point.

Favoured view is to look 45.95-46c support to hold and correct higher from there.

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 seems to have ended at 46.10c. A daily close below 46c will negate this possibility and a major downtrend could set in subsequently.

The RSI is in the neutral zone indicating that it is neither overbought nor oversold.

The averages in the MACD are 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 below the short-term average of 8-day EMA at 49.32c and the 34-day EMA is at 50.99 cents. Therefore, look for cotton futures to test the support levels.

Supports are, at 47.80, 46 & 45.25c. Resistances, at 49.42, 50.85 & 53 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 historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com).

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