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Gnanasekar T.

NYCE cotton futures ended firmly higher on Friday on buying interest from trade and funds together. Trade buying in the back months gave futures an initial lift, which was followed by a wave of buying by funds and lifted the market higher.

USDA export sales report showed net upland cotton sales hitting 153,900 running bales (RBs, 500-lbs), slightly above trade belief it would range from 110,000 to 150,000 RBs. Shipments were also higher-than-expected at 161,100 RBs, compared to expectations it would range from 120,000-150,000 RBs.

However, cotton exports remain way behind the pace needed for exports to hit the USDA projection of 10.8 million (480-lb) bales in exports for the 2002-03 marketing year (July-August). USDA forecast declines in US mill consumption and exports, lowering them to 7.7 million and 10.8 million (480-lb) bales, respectively, from October's 7.9 and 11 million bales.

USDA, as expected, pared US cotton output in 2002-03 to 17.82 million bales from 18.07 million and 20.3 million in 2001-02. World ending stocks were upped to 40 million bales, against 39.83 million.

The active December contract corrected lower initially and then jumped sharply as per our expectations. Now prices are expected to head higher with strong resistance initially at 49.78 cents and then at 50.10 cents, which is the previous top made last week. A break of this level will take cotton futures higher to 55 cents at least and has the potential to move further in the longer term.

The important resistance level at 50.10 cents needs to be decisively broken to provide strength to the bullish move from here. A triangle pattern noticed last week broke the 48.50 cents resistance and is now headed higher.

Elliot wave counts are showing a corrective pattern in the medium term in progress again. We are in the end of the `B' wave a corrective pattern and the `C' wave has started with a wave equality target, of 55 cents in the medium term. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. This leaves scope for prices to head higher till it gets overbought again. The averages in MACD, are comfortably above the zero line in the indicator. As long as it stays above the zero line prices will continue their bullish streak.

Current prices are way above the short term and medium term averages of 9 and 50 day respectively. Look for prices to head higher. Resistances at 49.80, 50.10 and 55 cents. Supports at 48.10, 47.15 and 45.60 cents.

(The author is a trader at 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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