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Monday, Jun 02, 2003

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Columns - Technical Analysis


NY cotton may head south

Gnanasekar.T

NYCE cotton futures closed lower on Friday on trade and fund selling. Positive weekly export sales numbers from the US Department of Agriculture were unable to add support. On the supply side, the world is having a difficult time producing cotton in the Northern Hemisphere this year because of weather conditions.

On the demand side, China continues to buy cotton and the US is still consuming. Market received no succour from a bearishly construed monthly annualised cotton consumption report issued by the US Census Bureau. The National Cotton Council of American forecast US annualised cotton consumption at 7.1 million (480-lb) bales, much lower than trade expectations it would range from 7.3 million to 7.4 million bales.

Cotton exports of 273,100 running bales were 2 per cent higher than the previous week. Net upland sales were reported at 77,500 running bales, 54 per cent below the prior week.

The active July contract is moving as per expectations. After a consolidation phase prices went lower and are now closer to testing the previous low made three weeks ago at 49.90 cents. As mentioned earlier a consolidation after a sharp down move is a continuation pattern, in the direction of the current trend, which is bearish. Crucial support now at 49.95 cents and a close below this level will be treated as a bearish signal by the market. The next important support to watch will be at 48.45c from where the rally to 60 cents started. This support should hold in the short term.

An unexpected break of this level will be very bearish for cotton. As per Elliot wave analysis an impulse wave "C" has ended at 60.75 cents and we should, therefore, be looking for a down move from here, which will be the beginning of a new down trend cycle in cotton futures. RSI is in the oversold zone and therefore can expect an up ward correction next week. The averages, in MACD are below the zero line the indicator indicating bearishness. Current prices are below the short-term average of 9 day EMA at 52.66c and the 50 day EMA is at 56.33 cents. Look for prices to initially go lower and then correct higher. Resistances at, 51.85, 52.65 and 53.75. Supports at 49.90, 48.80 and 48.45 respectively.

(The author is a trader with Scotiabank and the views expressed by him are his own and not necessarily that of his employer. This analysis is based on the historical prices movements and there is risk of loss in trading.)

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