The Hindu Business Line : Cotton likely to test resistance

Cotton futures ended higher on Friday, inspired by a recovery in the grains complex. Next week’s moves in cotton futures would be determined by more switch trade, the performance of the grains markets and the data coming from the US Agriculture Department’s monthly supply/demand report, which is due on Wednesday. Fundamentally, the trade is monitoring spring planting conditions in several producing States in the US cotton belt such as Texas and Georgia.

There was little reaction to the US Agriculture Department’s weekly export sales report.

The active March cotton futures contract moved perfectly in line with our expectations, testing our support levels and then rising higher from there. Failure to hold support at 74.85 further extended the downside. This will be an important resistance going forward. Initial resistance will be seen at 72.95 cents. Supports are now in the 69 cents zone. Direct rise above 76 cents will turn the picture bullish and there even exists a possibility of prices rallying to 84 cents subsequently.

Positive divergence favours a bullish rally towards 76 cents now.

The Elliot wave counts indicate a third wave impulse in progress to have possibly ended and a corrective fourth wave in motion. After this correction ends, we can expect the impulse to continue higher. Indicators are displaying a neutral picture.

The RSI is in the neutral zone now, indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator, indicating bullishness to be intact.

Therefore, look for cotton futures to test the resistance levels.

Supports are at 69.02, 67.85 & 66 and resistances are at 76, 79 & 83 cents respectively.

Gnanasekar T.

(The author is the Director of Commtrendz Research and also in the advisory panel of Multi Commodity Exchange of India Ltd(MCX). The views expressed in this column are his own and not that of MCX. This analysis is based on the historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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