The Friday close of $76.69 reversed the July Cotton trend from bullish to bearish. It will take a weekly close at or above $80.11 on Friday, July 9 to reverse the trend back to bullish. The good news for the Bulls is that the trend is not running away from turning bullish. The bad news for the bulls is that it will probably take at least two weeks before there is a realistic chance of that happening, and no guarantee that it will.
Here are some of the fundamental reasons for the change in attitude.
- U.S. Cotton plantings are going well
- International cotton crop condition improving
- High possibility that surplus stocks will reach a decade long high after this coming harvest
- Speculators selling out significant long sided trades can pressure the market.
What to do?
At this time I am recommending selling July Cotton around the $77.45/$78.10 levels (and these can and will change as the week goes on). I suggest a protective stop loss at the $80.15 level. It is my belief that July Cotton has the potential of dropping at least to the $76.40 level if not a good bit lower yet.
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.