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NY cotton futures likely to rise

T. Gnanasekar

THE New York cotton futures ended mixed on Friday but slightly higher for the week. Trading was very quiet, with traders apparently waiting for actual precipitation reports for rain forecast in the Delta and South-East next week. Variable rains in West T exas at week's end put many fields in near-perfect condition as the time frame for optimal planting begins in that key swing producing region. A recovery in the US stock markets and other agricultural commodities gave the right momentum to a cotton marke t waiting for some bullish news. As expected there was a upward correction last week, due to the speculation/Hedge report which showed the funds were net short 30.3 per cent.

With Friday closing, a record six times the 45 cents level has been tested and unable to break downwards. A lasting bottom at this level cannot be confirmed till a break of 53 cents on the up. Various technical factors favor a price move up wards from th is level. RSI due to a upward correction last week has come out of the oversold zone and is heading up.

A positive divergence (which happens when prices are making a new low which is not confirmed by a new low in the indicator) in RSI, is also one of the reasons for expecting a correction upwards. MACD came close to crossing over downwards when the contrac t tried testing the low of 45 cents, but continued the upward momentum as there was good support at 45 cents. Using the Elliot wave technique in technical analysis, we could be in the fifth wave, which is the end of this bearish move, which started from 70 cents. However, the two exponential averages have not crossed over yet to show a reversal in trend. Once a cross over is in place we could see a lasting bottom at 45 cents. Therefore, look out for a test of 50 cents on the up with strong support at 4 5 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)