The Hindu Business Line : Cotton futures may come down

NEW York cotton futures ended higher on Friday due to the recent hurricane Katrina threatening to hit the cotton-growing areas of Florida and Texas. The current hurricane could have a bullish effect on cotton futures if it were to move towards Mississippi, Louisiana and Arkansas where as much as 20 to 30 per cent of the crop is open.

Markets will continue to focus on the crop prospects in the US and elsewhere. With the USDA's monthly demand/supply figures a fortnight away, expectations are being built on lower crops in US and China. The Active December contract headed lower as we expected. Prices have been finding support at the trend line as seen in the chart above. Trend line support at 47.760 cents held well, for a rise till 49.80 cents, however only a move above 51 cents will increase the possibility of bullishness in cotton futures, also being the important 200-day EMA point. Failure to hold support at 47.80 cents can now take cotton futures even lower to 45.95-46 cents another crucial long-term trend line support point.

Favoured view is to look 45.95-46 cents support to hold and then rise higher from there. Elliot wave analysis points to a corrective A-B-C pattern, ending at 41.71 cents and a new impulse in progress. The second wave of that impulse looks to have ended at 46.10 cents. A daily close below 46 cents will negate this possibility and a major downtrend could set in subsequently.

RSI is in the neutral zone indicating that it is neither overbought nor oversold. The averages, in 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 48.74 cents and the 34-day EMA is at 50.29 cents. Therefore, look for cotton futures to head lower.

Supports are at 47.80, 46 and 45.25 cents. Resistances at 49.42, 50.85 and 53 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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