Gnanasekar T.

NEW York cotton futures finished marginally lower on Friday, as the trade was cautious ahead of the approaching hurricane Dennis and the USDA monthly report on demand/supply due next Tuesday. The ability of cotton futures to sustain at current levels and surpass recent highs depends mostly on developments in China, which is the world's top producer and consumer of cotton. Any aberrations there could have a sentimental effect for the start of the 2005/06 marketing year (August/July). With China having less carryover stocks and weather problems in cotton farms, production is expected to be less than demand.

In other news, the market took note of news from the USDA's weekly export sales data, which showed that the US cotton sales hit 347,600 running bales (RBs, 500-lbs each), above market expectations again confirming the robust demand growth.

The active December contract corrected lower and is seen moving in a corrective range. Important resistance is still seen at 57.74 cents, also being the trend line resistance on the upside. Important support level to watch out for in the coming week is at 53.71 cents, the horizontal trend line point and a crucial fractal bottom. A daily close above 58 cents will signal clear bullishness in cotton futures. We can expect prices to edge lower towards the 53-54-cent range and then rise higher from there. The favoured view is to expect a correction lower towards 53.70 cent levels and then rise higher from there.

Elliot wave analysis points to a corrective A-B-C pattern, ending at 41.71 cent and a new impulse in progress. The second wave of that impulse looks to have ended at 46.10 cents. We could possibly be in the third wave of the impulse now. RSI is in the neutral zone indicating that it is neither overbought nor oversold.

The averages in MACD are above the zero line in the indicator, indicating a bullish reversal. Only a crossover of the averages below the zero line in the indicator will suggest bearishness. Current prices are above the short-term average of 8-day EMA at 55.40 cents and the 34-day EMA is at 52.87 cents. Look for cotton futures to consolidate and rise higher again.

Supports are at 54.65, 53.70 & 52.65 cents. Resistances at 57.15, 58.25 & 60.50 cents respectively.

(The author is associated with Multi Commodity Exchange of India Ltd. The views expressed in this column are his own and not necessarily that of his employer. This analysis is based on historical price movements and there is risk of loss in trading. He can be reached at gnanasekar_thiagarajan@yahoo.com.)

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