May 24th 2016 marks the last time that cotton prices were trading below the 200-day simple moving average, thus reaffirming the positive trend that traders have seen over the past several months. With price action continuously making relatively higher lows and higher highs on the chart following the February 2016 low, the bulls appear to be in firm control of this market.
The recent USDA WASDE report provided some fundamental verification of the current trend with export forecasts revised higher to 12.7 million bales, a month-over-month increase of 200,000 bales. Strong domestic export demand led to relatively lower ending stocks here in the US, setting the stage for an environment conducive to further gains in price.
Despite the relatively up-beat tone of this market, many traders are looking forward to new crop cotton expectations for the 17/18 year which, depending on yields, could boost ending stocks even higher, despite the strong export demand. An argument could be made that the markets are overbought at these levels; however, a break in technical structure (i.e. relatively lower low) would like be needed to negative the current positive bias.
May’17 Cotton Daily Chart
Source: RJO Futures Pro
Series 3 Licensed, CMT
Market Strategist II
Erik attended the University of Illinois in Champaign where he majored in Communication with a concentration in Economics. As a member of the Market Technicians Association, he has distinguished himself as a professional in the field of technical analysis and currently holds the Chartered Market Technician (CMT) designation.
Erik began working as a Technical Analyst at JS Services Research and Trading LLC, where he analyzed futures contracts providing traders with key technical levels and trading strategies. While there, he also created a 4-week Technical Analysis educational course geared toward teaching traders how to utilize Technical Analysis in their trading strategies.