Cotton May Decline 12% by June, Beijing Capital Says: Technical Analysis

Cotton traded in Zhengzhou may drop 12 percent from yesterday’s close to 24,000 yuan ($3,685) a metric ton by June, according to technical analysis from Beijing Capital Futures Co.

The 24,000 yuan level is estimated using point and figure chart analysis, Huang Xiao, research manager at the Beijing- based brokerage, said by e-mail yesterday. The attached chart shows futures may first decline to about 26,700 yuan, one of the levels indicated by so-called Fibonacci analysis.

At about 26,700 yuan “support is weak so if cotton falls through this level, it’ll go straight for 24,000 yuan,” Huang said. “No other agricultural product exhibits a more obvious declining trend than cotton,” he said. The contract closed at 27,275 yuan a ton yesterday on the Zhengzhou Commodity Exchange.

Cotton futures in China have plunged more than 20 percent since reaching a record 34,870 yuan a ton on Feb. 17 on concern high prices and the government’s tightening of lending will hurt demand in the world’s biggest consumer. The contract for September traded at 27,000 yuan a ton at 9:51 a.m. Beijing time.

Beijing Capital Futures, a member of China’s three commodity futures exchanges, is a subsidiary of state-owned Beijing Capital Group Ltd., an infrastructure and investment holding company owned by the municipal government of Beijing.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. Fibonacci analysis is based on the theory that prices tend to drop or climb by certain percentages after reaching a high or low. A point and figure chart gauges trends in prices without showing time.

(Source: http://www.bloomberg.com/news/2011-04-27/cotton-futures-in-zhengzhou-to-drop-12-percent-by-june-technical-analysis.html)