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Cotton Technical Analysis - Cotton Trading: 2016-11-11

Cotton prices rise despite world crop upgrade

Cotton prices declined on bearish news the US Department of Agriculture revised upward US and global production and ending stocks for 2016 -17. Will cotton continue falling?

In the November 9 World Agricultural Supply and Demand Estimates report, the US Department of Agriculture revised upward the US cotton production to 16.16m 480-pound bales from an estimate of 16.03m bales made in October. A sharp rise in the crop estimate in Texas was the main reason for the upgrade despite lowered estimates for production in the South East. The US ending stocks were also forecast to rise to 4.50m bales in 2016 -17 from an earlier estimate of 4.30m bales. The global supply estimates were also upgraded together with production and season-end stocks: the world production was raised to 103.3m bales due to a 500000-bale increase in India crop estimate, as world ending stocks were upgraded to 88.3m bales, an upgrade of nearly 1m bales from previous month's forecast. Prices retreated on higher supply forecast.

COTTON

On the daily timeframe the Cotton: D1 has been retracing higher following the decline after hitting 26-month high in early August. The price has breached above the resistance line and the fractal high.

  • The Parabolic indicator has formed a buy signal.
  • The Donchian channel is flat, indicating no trend yet.
  • The MACD indicator gives a bullish signal.
  • The Stochastic oscillator is rising and has not reached the overbought zone.

We expect the bullish momentum will continue after the price breaches above the upper Donchian bound at 71.23. This level can be used as an entry point for a pending order to buy. The stop loss can be placed below the fractal low at 68.25. After placing the pending order, the stop loss is to be moved to the next fractal low, following Parabolic signals. By doing so, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level (68.25) without reaching the order (71.23), we recommend canceling the position: the market sustains internal changes which were not taken into account.

Technical Analysis Summary

PositionBuy
Buy stopAbove 70.23
Stop lossBelow 68.25

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