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Cotton on the Brink

Posted 08/15/2018 9:39AM CT | RJO Market Insights

The extent and impulsiveness of Mon’s decline following last Fri’s bearish divergence in momentum below 86.10 reinforces our bearish count discussed in Mon morning’s Technical Blog and puts the market on the brink of breaking 06-Jul’s obviously key 81.75 low. As a result of this weakness we are trailing our short- and longer-term risk parameters to 03-Aug’s 86.76 suspected minor 1st-Wave low and 01-Aug’s 89.98 larger-degree corrective high detailed in the 240-min chart below.
Cotton Dec '18 240min Chart
Cotton Dec '18 Daily Chart

The daily log scale chart above provides a textbook example of our three key reversal requirements:

1. a confirmed bearish divergence in momentum on 18-Jun needed to break the previous uptrend
2. trendy, impulsive 5-wave behavior down and, most importantly
3. proof of 3-wave, corrective behavior on a subsequent recovery attempt (that also happened to peter out around the (89.83) 61.8% retrace of the initial 94.82 – 81.75 decline.

This daily chart also shows NO levels of any technical merit below 81.75. Combined with a still-whopping 97% reading in our RJO Bullish Sentiment Index of the hot Managed Money positions reportable to the CFTC, the market’s downside potential and vulnerability could be severe and relentless. Per such, a full and aggressive bearish policy and exposure remain advised with strength above 86.76 minimally required to threaten this cal and warrant its cover. The market’s downside potential below 81.75 is indeterminable and potentially extreme as the market could force the capitulation of the Managed Money community’s long-&-wrong exposure.

Cotton Dec '18 Weekly Chart

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