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Could Cotton Have Finally Put in Bottom?


After spending most of 2013 north of 80, and as high as 97.35 in 2014, December cotton reached a low of 60.83 in September.  When dealing with a large fall it's never wise to jump headlong into long positions at the first sign of bullishness. But some signs are appearing.

Between August and September Cotton (CT) has formed a rather awkward looking inverse head and shoulders pattern. Awkward though it may be, since the September low the price has made a higher swing low, and if the price can close above 65.65 that also creates a higher swing high.

Figure 1. December Cotton (CT) Futures

cotton-1.jpg (1)

The price has already broken above the neckline of the inverse head and shoulders. Fair warning though; the price also made a higher swing low and high in August and early September because falling to a new low. Keep risk tight on long positions. Entering near 64 to 65 with a stop below 62 is one way to play it. Initial upside target is 72, followed by 76 if the inverse head and shoulders pattern plays out.cotton-1.jpg (1)

Seasonally cotton usually sees one more dip in November (likely higher than the recent lows) before rallying into the end of the year. That indicates patience may pay off, as another dip gives more insight into whether there is buying support above the prior lows or not.

 

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