The price of cotton has dropped away from daily scale compressions that formed in early December and the fall produced a bottom extension on Christmas Eve, as shown in the first chart. This is merely the latest 'leg' down from a peak in June after prices ran up almost 30 cents but could not sustain that dizzy level, as shown in the second chart. This brings prices down toward the longer-term gradual uptrend that is shown in the third chart:
This fits with our general view of agricultural commodities, which we think are engaged in their usual habit of 'bumping along the bottom' in between bull markets. We tried to buy grains quite recently (but 'timed out' of the trade) and now this is a similar chance to buy some cotton. Once again, as we said when advising that grain purchase, this is an attempt to position for an up-move that may or may not happen quickly. It is better to buy in these circumstances than when the crowd has already started to chase prices higher, as the risk is being stopped out for a small loss rather than risking a bigger one when volatility has increased because of the crowd's interest.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com