Blow-off Top in Cotton Could Put Highs in for the Year | RJO Futures

May 24, 2017 3:35PM CDT

Shrinking old crop stocks and increasingly strong exports for US cotton led to what can only be described as a textbook blow-off top in the July Cotton chart. Starting May 11, the front-month contract skyrocketed over 10.00 before the fierce rally culminated on the 15. From here, it only took about five trading sessions for the market to retrace all of its prior gains and revert back to the intermediate term trend line originating from last March’s low.

The dust has now settled and it appears as though the recent blow-off top in cotton has the potential to mark the highs for the year. Market participants are now beginning to shift their focus to new crop. With planted acreage up more than 20% year-over-year, new crop stocks appear poised for a solid year and the fundamentals on cotton lean bearish. Weather thus far has been accommodating here in the US, and barring any major weather setbacks, domestic yields for upcoming new crop should be on par with the 5-year average.

Prices have pulled back sharply following the recent top and today’s action validated support from the previously mentioned trend line. This will serve as initial support for the July contact with additional structure seen from 74.80 – 75.35. If the market can produce a close below 74.80, the pattern of relatively higher highs and higher lows would then be violated, opening the door to further downside potential.


Jul '17 Cotton Daily Chart

Jul '17 Cotton Daily Chart

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.