Futures Outlook: Cotton Revisited and New Potential Formations

Lindsay Hall |

Futures Outlook for the Week of 04/29/13

I wrote about Cotton back in January while it was sitting around 78.55.  My thoughts then were: “Cotton has been ranging between 80 as a ballpark on the high side and the 69 territory on the low end of things.  As it has been a bit range bound and we’ve seen a bit of an effort for it to rally, I personally would like to see it rally and break through the 80 level.”

Cotton did go ahead and break the 80 territory for you and rallied up to a high point last month around 94.  We got a nice push upward out of it, but now let’s look at the charts and evaluate where it stands currently and what may happen next.


Let’s look at the Daily chart first for some near term perspective.

In this chart, there are two things that I want you to look at.  First, I want you to pay attention to the resistance territory that has existed around the 84/87 level.  Notice that after our retracement and downward moves; we have now rallied a little bit to make an attempt to challenge these levels.  Secondly, I want you to notice that we are breaking the near term trend line in a bullish fashion.  As our current momentum seems to be bullish once more, we will need to take it to the Weekly chart to find our caution flag as well as a potential for the formation of a chart pattern that might be useful here.

On the Weekly chart, I have highlighted what may end up becoming a head and shoulders pattern.  This pattern tends to be bearish in nature and a completion of this pattern, should it come to fruition could lead Cotton back down towards the 69 territory I mentioned when last I wrote on Cotton.

At this point, there are a couple of things that need to be watched.  You will need to watch the Daily chart to see whether or not this renewed bullish momentum continues and you will also need to pay attention for the potential that the bullish momentum could be a head fake that leads you into a head and shoulders pattern on the Weekly chart.

The Monthly chart for Cotton is not extremely helpful right now.  You will note that I have highlighted a small ascending channel that may be getting a little long in the tooth so to speak, so again you will want to keep an eye on the same levels we’ve been discussing in addition to this channel if you are involved in Cotton from a longer term perspective.

Right now it is the Daily and Weekly chart that are of the most import.  The Daily chart will help you to gauge momentum and bring you to a more near term observation of whether or not we end up in a head fake scenario.  The Weekly chart will be your caution flag and potentially your guide to a bearish move over the next number of weeks or even months if the head and shoulders pattern comes to fruition and completes.

For those of you, who may want to explore the Cotton market without “going all in” so to speak, consider utilizing Options to dip a toe in this market.  We focus on utilizing Options on these Commodities in order to lessen capital outlay and we use fixed risk strategies that allow you to rest at night knowing exactly where you stand.  You should be prepared for the appropriate actions should these markets start to shift.  We are here to make your options clear!

For more information or for daily assistance with the Options market on Commodities and Futures, visit www.rmbgroup.com or click here to get started today. Read disclaimers here.  

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


Symbol Name Price Change % Volume
XL45 XLIT Ltd. 5.500% Gtd Sub Nt 2045 n/a n/a n/a 0


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