Cotton futures ended lower on Friday in thin range-bound trade on speculative trading, moving in a volatile range ignoring direction from other commodities, which it has done so in the recent past.
Market has been mostly directionless with a bearish bias. The upcoming USDA monthly supply/demand data could provide further bearish clues.
Fundamentally, weather conditions are expected to be much drier in the Delta region, which will aid planting efforts there. The expanding cotton inventories could act as a drag on the market.
Active July cotton futures contract tested the resistance levels as per our expectations and then fell lower as expected.
Rallies to 72-74 cents found strong resistance and subsequently fell lower. Only a direct rise above 76 cents will turn the picture bullish. As seen in the chart, above an important trend line, resistance lies at 72.50 cents.
As mentioned in the previous update, even though prices pulled back towards 72-73 cents, the head and shoulder pattern is in the making and therefore we expected bearishness to set in with a possibility to test 60 cents on the downside.
Important support is at 64.50 cents followed by 63.20 cents now. The big picture counts still are giving mixed signals and would, therefore, prefer to watch the prices for more clues.
Indicators are displaying a neutral picture. The RSI is in the neutral zone, indicating that it is neither overbought nor oversold.
The averages in MACD have gone below the zero line of the indicator, indicating a bearish reversal. Therefore, look for cotton futures to test the support levels.
Supports are at 65.25, 63.20 & 61.75 cents and resistances are at 67.50, 69 & 72 cents respectively.
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