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Cotton futures ended sharply higher on Friday on the back of a weaker dollar and a broad rally in other commodities. The rally was fuelled by investment funds on a positive trend in the fibre contracts. The US cotton prices had jumped as much as 20 cents a lb between mid-March and mid-May, partly driven by arid weather that threatened the crop in the key cotton areas of Texas. The harsh drought and dry winds across the West Texas cotton plains could stunt the crop in that area and set the stage for a sharp rally in the coming sessions.

Active July cotton futures rose higher in line with our expectations. As mentioned in the previous update due to highly overbought conditions, prices were vulnerable for a downward correction. Subsequent to that we saw good support at 53-54 cents in line with our view. We can now expect a gradual rise towards 58-60 cents. A possible consolidation in the 55-57 cents looks likely before the next move up towards the 60 cents zone. Elliot wave counts now indicate a possible projected target at 63-65 cents. Subsequently, a corrective structure could take a shape. RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are above the zero line of the indicator indicating a bullish reversal. Only a cross over below the zero line again could signal bearishness. Therefore, look for cotton futures to consolidate and then rise higher again.

Supports are at 55.75, 54.20 & 53c and resistances are at 58.10, 59.35 & 60.52 cents respectively.

Gnanasekaar 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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