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Gnanasekar T.

NYCE cotton futures closed higher on Friday mainly due to constructive weekly export sales report, record widespreads and the disposition of March cotton before deliveries start.

Switching on the last day before first notice day on Monday took on special importance this month because of changes taking effect to cotton grade specifications from the March to the May contract.

USDA said Friday that net export sales rose 205,700 (500-lb) running bales, one percent above 202,800 a week earlier and at the low end of trade estimates for 200,000-250,000 running bales. The primary buyer was China. Shipments came in at 228,900 running bales, more than the 200,000-225,000 expected.

Meanwhile, USDA projected cotton crop for this year to range between 17 million and 17.5 million bales. The average estimate of 17.25 million bales was slightly above last year's 17.1 million bales of cotton. In 2001-02, US cotton producers harvested a record 20.3 million bales, the USDA said.

The active March contract moved lower to close well below the trend line support at 50.87c. As expected last week, a firm close below this trend line triggered a sell off as indicators continue to show negative divergences. The Fibonacci retracement level at 49.35c also provide ample support.

Elliot wave counts are showing a corrective pattern in the medium term in progress again. The corrective wave "C" is in its last leg from here and a confirmation of that will come after the trend line at 50.10 is breached convincingly. RSI in still in the neutral zone and slowly heading to the oversold zone, which can bring in a correction next week. It showed a clear negative divergence last week, where prices are making a new high, which is not confirmed by a new high in the indicators. In spite of the sharp fall in future prices, the averages in MACD are however still above the zero line. A break of the zero line will confirm a genuine reversal in prices. MACD is also showed a negative divergence indicating that a correction downwards can come in soon. Current prices have gone below the short-term average of 9 and 50 day EMA. Look for prices to head lower. Resistances at 52.90, 53.10 & 55c. Supports at 49.35, 48.48 & 47.95c respectively.

(The author is a trader at Scotiabank and the views expressed by him are his own and not necessarily of his employer. This analysis is based on the historical prices movements and there is risk of loss in trading.)

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