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Macro View of Cotton

K. Tanner

Thursday's close of 77.78 was the highest close since the June lows, but still not above the October equalized high of 78.82. 

  Closing Friday (and the week) above 78.82 should be technically positive, and can allow for short-term momentum buying as well as intermediate-term short covering.   As you can see from the daily chart, the 83.00 to 79.00 level was traversed in just two business days. Urgency could prevail once again, but this time to the upside.   But previous lows become resistance in rising markets, and those consolidative lows of Dec '11 to Apr '12 will in unison act as speed bumps to aggressive buying.    Your bias will depend not only on your view but also your time horizon.   To short-term momentum players, trading above 79.00 can draw in more system/fund buying. Price could pop to 83.00 initially before slowing to 86.00.   To longer-term players with a bearish bias, selling into short-term strength in front of - and in the midst of - successive resistance levels would be very attractive. See the red box on the daily chart.   But above the March highs of 92.00 (in the March contract), which was the last significant bounce before the May swoon, and both short and long-term players could be facing the threat of even higher prices.   And what if the red box holds? A bull-trap is sometimes the best bearish indicator.   Then the Jan '13 and Nov '12 lows will provide a clue. They will become the litmus test for further weakness.   And then looking back at the weekly chart, note that the 2008 high (61.87), late 2010 low (61.60) and the 2012 low (64.12) cluster around 62.61 - the 61.8% retracement of the aforementioned 2008/2001 range.   Coincidence? Perhaps. But still something worth watching if and when new lows do occur    The 50% retracement of the 2008 to 2011 range is 83.54 (again equalized with the front month being March), and by coincidence or not, the Dec '11 and Mar '12 lows for the most part held that level.

Note that Dec '11 low to Jan '12 range was 15.12, and since the May sell-off, the June to October range was 14.70 - so roughly the same amplitude of consolidation.

Today’s commentary is supplied by Craig Coatney of Chicago. Mr. Coatney is of the pure technical stripe, and we follow his chart expertise closely for cotton. He has 25 years trading experience, starting on the CME floor with Drexel in 86, primarily with currencies. His tech view on cotton is interesting in that he sees much importance at the +/- 8400 level. Recall that this is the level of the major low for Mar and spot in Dec 2011. This is above the gap area around 8000 that so many traders are looking for.