Cotton Prices Have Topped: Look Out Below!

Cotton (CTN26) futures present a selling opportunity on more price weakness.

See on the daily bar chart for July cotton futures that Wednesday’s big losses produced a technically bearish “key reversal” down, whereby the market scores a major new high and then backs way off, to see a higher daily high and lower daily low than the previous trading session’s trading range, with a lower close. That’s a technical clue the market has put in a near-term top and that the bulls are now exhausted. It is my bias the cotton market has put in a near-term top.

Fundamentally, the consumer attitudes have shifted away from cotton in recent years, favoring more synthetics. Also, price-bearish is declining U.S. export sales of its cotton to China the past couple years.

A close in prices below chart support at 77.50 cents in July cotton futures would give the bears more strength and it would also become a selling opportunity. The downside price obejctive would be 71.00 cents, or below. Technical resistance, for which to place a protective buy stop just above, is located at 80.00 cents. Beware that price action in cotton could now be more volatile on a daily basis, as seen by Wednesday’s big downdraft. Also, a move back above 80.00 cents in July cotton would be “game on” again for the bulls.

IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any trades and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.

Here is what the Commodity Futures Trading Commission (CFTC) has said about futures trading (and I agree 100%): 

Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.