Cotton Dec '19 240 Min Chart

Yesterday and today’s continued weakness below Wed’s 63.06 low reaffirms the developing downtrend and leaves Wed’s 64.20 high in its wake as the latest smaller-degree corrective high this market needs to sustain losses below to maintain a more immediate bearish count.  Its failure to do so will confirm a bullish divergence in short-term momentum and expose at least a correction of the portion of the major downtrend from 01-Jul’s 68.35 high detailed in the 240-min chart above where the prospect of a complete 5-wave Elliott sequence is clear.

But even if the market were to confirm such a divergence, the daily log chart below shows the market would still be below a ton of former support from the 64.70-to-65.50-range that, since demolished on 09-Jul, now serves as a huge resistance candidate.  Strength above at least this 65.50-area in general and above 01-Jul’s 68.35\ larger-degree corrective high specifically is required to threaten or negate a broader bearish count.

Cotton Dec '19 Daily Chart


Cotton Dec '19 Weekly Chart

Moving out to a longer-term perspective, the prospect that the major decline from Jun’18’s 94.00 high is nearing the end of a 5-wave Elliott sequence is clear in the weekly log chart of the Dec contract above.  HOWEVER, strength above 01-Jul’s 68.35 larger-degree corrective high remains specifically required to confirm a bullish divergence in momentum on a scale sufficient to conclude the end to this major bear and start of a more extensive correction or reversal higher.

Another important facet to that 68.35 high and key risk parameter is that this is the level the market needs to recoup to render currently historically bearish sentiment/contrary opinion indicators “applicable” to a base/reversal threat.  It is understood that the current and understandable 31% reading in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC is the lowest since Oct 2006.  We have no doubt that this grossly-skewed bearish sentiment will eventually contribute to a BASE/reversal environment that could be major in scope.

Traders are reminded however that sentiment/contrary opinion is not an applicable technical tool in the absence of an accompanying confirmed bullish divergence in momentum of a scale sufficient to break the major downtrend.  Herein lies the importance of 01-Jul’s 68.35 larger-degree corrective high and key risk parameter.  Until and unless such 68.35+ strength is proven, this market can continue to get pummeled to depths indeterminately lower.  Indeed, referencing that Oct 2006 period, the market actually wallowed around incessantly laterally during such depressed sentiment conditions and didn’t reverse higher in any substantial sustain way until Jun 2007.

The monthly log active-continuation chart below also shows the market engaging the lower-quarter of the past seven years’ lateral range where we want to keep a keener eye on any bullish divergence in mo that would stem the clear and present downtrend and, along with historically bearish sentiment levels, expose a base/reversal threat that could be major in scope.  Again, herein lies the importance of 01-Jul’s 68.35 low.

These issues considered, a bearish policy and exposure remain advised with a recovery above 64.20 sufficient for shorter-term traders with tighter risk profiles to pare or neutralize bearish exposure.  For longer-term players however, a recovery above at least the 66.00-area and preferably above 68.35 is required to pare or neutralize exposure.  In lieu of such strength further and possibly accelerated losses remain expected.

Cotton Monthly Chart

RJO Market Insights

RJO Market Insights specializes in forward-thinking analysis, focused on potential market-moving events and dominant factors driving price discovery. Detailed fundamental and technical coverage across multiple commodity sectors is combined with objectively-constructed trade recommendations to provide an industry-leading product for R.J. O’Brien’s Institutional clients, commercial hedgers, introducing brokers and individual investors free of charge. Content is distributed in both text and audio formats, with specialized service offerings provided by account type.
For more information on RJO Market Insights, contact your broker or RJO representative.