The Hindu Business Line : Cotton futures may move down

Cotton futures in the New York cotton exchange closed sharply downwards owing to weak outlook for cotton exports in the days to come. Major selling was noticed at the stop loss levels indicating the market's loss of confidence in the US achieving the export target set by USDA projecting that American cotton exports would hit 11.2 million (480-lb) bales in the 2002-03 marketing year (July-August).

Concerns over the soft pace of the US cotton exports combined with belief that cotton prices are overvalued can send the market slithering to ever lower levels. Cotton reversed sharply in the last couple of weeks mainly due to two storms that hit the U.S. Gulf coasts.

Despite losses that may be inflicted by Lili and an earlier hit in the US Delta by Tropical Storm Isidore, the cotton market seems to be more concerned on the export targets. USDA pegged U.S. net upland cotton sales at 54,300 running bales (RBs, 500-lbs), sharply below trade belief it would range from 140,000 to 180,000 running bales.

The active contract December fell lower sharply after making highs this week. The crucial support at 42.90c gave way and closed lower. This break could see prices testing the trend line support now at 41.58c. A further break of that level has the potential to test the trend line support downwards at 38.92c. As noticed the channel in which prices are moving would prices to steady at the support levels in the weeks to come. A channel break downwards will be a very bearish signal for cotton in the medium term to long term.

The Fibonacci retracement targets of 61.8 per cent also lie as at 41.90c at the lower end of the channel. Using Elliot wave analysis, it is still unclear on whether the correction we have been talking about earlier in the bigger picture is complete or not. More in sights into the wave count can be had after watching if prices hold well at the 40c range. RSI is still in the neutral zone indicating that it is neither overbought nor oversold. The averages in MACD continue to be below the zero line in the indicator and as long as it stays there, hopes of an up ward reversal can be kept aside for some time. Current prices are way below the short and long term averages of 9 and 50 days EMA respectively. Look for prices to test the support levels downwards. Supports at 42.35,41.58 &38.92 cents. Resistances at 43.16, 44.20 & 45.35 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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