Medium term
Trade view / 09 September 2016 at 12:14 GMT

Cotton: Short-term bear, medium-term bull

Managing Partner / Spotlight Group
United Kingdom
Instrument: CTZ6
Price target:
Market price:

The technical picture for cotton is a muddled scenario. The technicals for one minute to five hours all scream “Strong Sell”. The daily is a “Buy”, weekly is “Neutral” and the monthly is a “Strong Buy”.

Certainly a weekly chart is not so encouraging as the near-term momentum looks poor with scope to 67.8 a definite possibility. However, I think the short-term play is going to be to highly dominated by the background noise and so I am inclined to look further afield and consider the more macro influences of cotton.

For that reason, I am attracted by forecasts of futures trading at about US cents 71/lb into 2017; that would be 2 cents ahead of the current prices prevailing on the March 2017 and May 2017 contracts.

The reason for the optimism is that there has been a retreat in production prospects in India from rain shortfalls in Gujarat, and increased incidents of pest attacks in Punjab and Haryana.
The weather outlook is not cotton planting friendly and it would be no surprise to see the US Department of Agriculture to downgrade global production estimates in coming months.

 Source: Spotlight Ideas   

Cotton 5-year chart:    
Source: Spotlight Ideas

Management and risk:

Parameters: Cotton CTZ6 December 2016 US Cents/lb
Entry: Buy 68.47,   (1057 GMT)
Targets: 69.66 ... 70.50 ... 71.90
Stop: 65.20
Time horizon: Medium-term

— Edited by Clare MacCarthy

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