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Cotton futures ended sharply lower on Friday on profit-taking and the option expiry in the spot contract dragged prices lower. The trend from here depends on what happens in the global stocks and crude markets and the next move in the dollar, which has swung from one day to the next for most of the week. Meanwhile, acreage for cotton planting seems to have risen and the monsoon another factor to watch out for. The market took note of the USDA weekly export sales report. The USDA said the total US cotton sales stood at 1,50,100 running bales (RBs, 500-lbs each), from 1,72,900 RBs in last week’s report.

Active July cotton futures have been in a broad trading range waiting for clues towards further direction. 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 also expected a consolidation in the 55-57 cents, which is presently underway. Trendline resistance is at 57.45 cents as seen in the chart above. Daily close above this level could hint at bullishness towards 61c or even higher. However, unexpected decline below 53 cents could cause doubts on our bullish view. Elliot wave counts now indicate a possible projected target at 63-65 cents. Subsequently, a corrective structure could take 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 57.45, 58.50 & 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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