The Hindu Business Line : Likely fall in NY cotton futures

NEW York cotton futures ended lower on Friday as market participants lightened up positions and remained on the sidelines ahead of the Monday's USDA monthly supply/demand report. Cotton futures spiked to a four-week high earlier, on un-certainty about crop damage in Louisiana and Mississippi as well as reports of crop losses in Texas.

The focus of Monday's report will mostly be on the expected cotton demand in the 2005/06 marketing year (August/July) and how much damage cotton farms in Mississippi, Alabama and Louisiana sustained from Hurricane Katrina.

The trade is expecting an increase in cotton production due to near-ideal growing weather conditions in most of the cotton belt. Market participants paid little heed to the USDA's weekly export sales report. The USDA said the US cotton sales reached 4,24,800 running bales (RBs, 500-lbs each) beyond market expectations.

The Active December contract rose further higher finding resistance near the recent highs. Important support is at 49.85c followed by the trend line support point at 48.90c. Unexpected break below the trend line support at 48.90c could take cotton futures lower to 47.65c or even lower. As mentioned earlier, clear direction for cotton futures looks difficult till a move above 53c is seen or a fall below 48c.

Favoured view is to look for a fall towards 47-47.25c followed by a rise 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 corrective second wave of that impulse looks to have ended at 46.10c. A daily close below 46c 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 have gone above the zero line in the indicator suggesting a possible bullish reversal.

Current prices are above the short-term average of 8-day EMA at 51.17c and the 34-day EMA is at 50.84 cents. Therefore, look for cotton futures to fall lower towards the support levels and then rise higher subsequently.

Supports are, at 50.65, 48.90 & 47.65c. Resistances at 52.50, 53 and 55 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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