Cotton Bull Sights 6-Year Highs, Defines New S-T Risk Level

June 11, 2018 7:34AM CDT

Overnight's poke above 30-May's 96.40 high reaffirms our broader bullish count updated most recently in 29-May's Technical Blog and, most importantly, leaves 06-Jun's 89.35 low in its wake as the latest smaller-degree corrective low this market is now minimally required to fail below to threaten the major bull. In this regard this 89.35 low becomes our new short-term risk parameter from which a still-advised bullish policy can be objectively rebased and managed.
Cotton Jul '18 240min Chart
Cotton Jul '18 Daily Chart
By virtue of overnight's continuation of the past few days' rally, the daily log chart above and weekly close-only chart below show that the trend is up on all scales. The uptrend remains as the dominant technical factor and should not surprise by its continuance or acceleration. This said however, traders should also be aware of three developing threats to the bull:

  1. the developing potential for a bearish divergence in daily momentum (confirmed below 89.35)
  2. last week's 96% reading in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC (highest in over SEVEN YEARS) and
  3. the market's encroachment on Mar'14's 97.35 high and upper boundary to a lateral range that arguably dates back to Jun 2012.

Cotton Weekly Chart
The monthly log active-continuation chart below shows the market's proximity to the extreme upper recesses of a 6-YEAR range. Amidst the threat of a bearish divergence in momentum and understandably historically frothy sentiment, if there's a time and place for this bull to peak out it's here and now. But herein lies the importance of last Wed's admittedly short-term corrective low and risk parameter at 89.35. For until and unless this market proves weakness below AT LEAST this minor corrective low, the trend is up on all scales and should not surprise by its continuance or ACCELERATION. Indeed, a clear break of a 6-YEAR high could expose steep gains to indeterminately higher levels straight away.

These issues considered, a full bullish policy and exposure remain advised with a failure below 890.35 required to pare or neutralize bullish exposure commensurate with one's personal risk profile. In lieu of such sub-89.35 weakness further and possibly accelerated gains remain expected.

Cotton Monthly 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.