The Hindu Business Line : Cotton prices to head upwards

Cotton futures at the New York cotton exchange closed sharply higher after lingering at lower levels throughout the week. An explosive rally on Friday came as a big surprise which was not backed by any major market moving news. It was mostly speculative buying which helped prices post a 11-session high. Fresh fundamental news is now needed to sustain and extend its gains from here.

The USDA's supply/demand figures are set to rise on the back of excellent sales and shipments, which might provide the much needed stimulus. Supportive export figures from USDA also helped prices recover sharply. Upland sales were pegged at 145,500 bales, 47 per cent above the previous week and shipments of 249,000 bales another marketing year high were 5 per cent above the previous week.

The International Cotton Advisory Committee revised downwards worldwide its 2001-02 cotton production estimate to 20.95 million tonnes compared with a record high of 21.06 million tonnes estimated last month. And world consumption was put at 19.65 million tonnes a slight increase from the 19.56 million tonnes estimated last month. Meanwhile, the Cotlook A index was flat at 43.15 cents per pound on Friday.

March contract is finding good support at the lower end of the trading range at 35c. The rally on Friday was coupled with heavy volumes which is a positive sign of a genuine up move in progress. However, cotton futures for the last three months has tried to rally up wards with strong volumes only to find stronger resistance at 38c. Unless, this range is broken decisively a clear trend will not emerge. The structures as per elliot wave analysis haven't changed much as we are still in a narrow range and only a break of this range can give some clues to future movements. A break of the 34c level down could however alter the elliot wave structures and can have a negative impact on prices. Therefore, a crucial level to watch would be the 34c level on the downside. RSI continues to be in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD, went below the zero line in the indicator and is trying to get back above it. A crossover below the line will have bearish implications. Current prices are now testing the short-term 9 day EMA and the 50 day EMA. Look for the prices to test the resistance level and head higher. Important support levels are at, 35.85,35.35 & 34.80. Resistances, at, 37.60,38.10 & 38.50 cents.

(The author is a Chennai-based technical analyst who tracks the international commodities futures markets. This analysis is based on historical price movement of the commodity concerned. There is risk of loss in trading.)

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