Cotton prices in India began the New Year with a bang. After being stuck in a narrow range all through December, cotton prices broke above a key resistance point by surging higher. The cotton futures contract traded on the Multi Commodity Exchange (MCX) is up about six per cent. Cotton prices were on a strong downtrend in the second half of 2016.

Along with restricted arrivals, the Cotton Corporation of India’s decision to purchase at market price from various parts of the country has also aided this price reversal. The recent rally eases the downtrend that was in place between July and November last year and also signals a trend reversal. The outlook is bullish. The 21-day moving average is turning around and is signaling a cross-over above the 200- and 100-day moving averages in the coming days.

This strengthens the bullish view and suggests that the downside could be limited in the short term. There is strong support in the Rs 19,500 to Rs 19,200 band. Though an intermediate dip to test this support region cannot be ruled out, a break below this support zone is unlikely. Traders with a medium-term perspective can make use of dips to go long near Rs 20,000.