Technically Speaking

Dec Cotton's Price Resistance

Source: DTN ProphetX

As most of you know, I'm one of the analysts that rotate through the Iowa Public Television show Market to Market. This last weekend was my turn in the analytical chair, discussing the various goings on in the markets. When it came time to discuss cotton, I mentioned the new-crop December contract was having trouble breaking through technical price resistance. Host Mike Pearson asked what that price was and I, true to form, could not recall off the top of my head. I told him though it would be discussed on DTN.

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And here it is.

The secondary (intermediate-term) trend remains up with resistance on the weekly chart for new-crop December cotton at 68.50 (that wasn’t so hard after all). This price marks the 33% retracement level of the previous downtrend from 82.95 (high the week of May 4, 2014) through 61.28 (low the week of January 18, 2015). Buying from both sides of the market has been seen, with commercial interest reflected in the strengthening inverse of the December to Marc futures spread (bottom study, green line) and noncommercial activity showing up as larger net-long futures holdings in weekly CFTC Commitments of Traders reports (third study, blue histogram).

One technical factor that could start to slow the market is its weekly stochastics (second study). Notice how both the faster moving blue line and slower moving red line are approaching the overbought level of 80%, in conjunction with the futures contract's struggle to reach its initial price target (68.50). If selling from either commercial or noncommercial traders increases due to ideas the contract is overbought, Dec cotton could move back into a sideways trend, or possibly a secondary downtrend.

If the U.S. dollar index stays under pressure (see my blog posts from last Wednesday and Saturday), noncommercial buying could continue. That leaves commercial traders to put pressure on new-crop cotton, most likely due to larger than expected planting progress estimates in Monday's weekly NASS report. Keep an eye on the trend in the Dec/Mar futures spread for signs that this (commercial selling) may be starting.

To track my thoughts on the markets throughout the day, follow me on Twitter:www.twitter.com\Darin Newsom

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