The cotton futures contract traded on the Multi Commodity Exchange (MCX) has been on limelight since the mid of May, and advanced 1 per cent on Monday to close at ₹18,090 per bale.
Since taking support at around ₹15,500 in late March, the contract has been on a medium-term uptrend. While trending up, the contract emphatically breached a key resistance in the band between ₹16,500 and ₹16,700 in early April.
Moreover, that the contract also conclusively breached its moving average compression at around ₹16,000 in early April, adds strength to the uptrend. However, after testing the key resistance at ₹17,500 in early May, the contract witnessed a corrective decline and found support at around ₹17,000.
Last week, the contract jumped 3 per cent decisively breaking through the key resistance at ₹17,500. The breakthrough has strengthened the medium-term uptrend. Subsequently, the contract continued its upward move by gaining another 1 per cent on Monday. The May month contract ends on Tuesday, testing a key resistance at ₹18,000. The June month contract is trading at around ₹18,210/bales and a minor corrective decline is possible in the near term. This corrective decline can provide an opportunity for the traders with a short-term view to initiate long on June month contract.
Short-term view: The contract breached a key resistance level at ₹17,500 last week is bullish from a short-term perspective. Uptrend is intact. The daily indicators and oscillators are featuring in the positive territory backing the uptrend. Traders with a short-term horizon can buy the contract in corrective decline while maintaining a fixed stop-loss ₹17,500.
Resumption of the uptrend can take the contract higher to ₹18,500 and then to ₹19,000 in the short term. Conversely, if the contract declines below ₹17,500 it can mar the short-term uptrend and drag the contract down to ₹17,300 and ₹17,000.
The medium-term uptrend will be mitigated only if the contract declines below the support band between ₹16,500 and ₹16,700.