Market Type: 9 (Most Bullish)
- Secondary Trend: Up
- December extended its secondary (intermediate-term) uptrend to a new high of $1.19 overnight through early Monday morning.
- The most recent CFTC Commitments of Traders report showed noncommercial traders decreasing their net-long futures position by 2,354 contracts (the week ending Tuesday, October 26)
- This was the third consecutive week of liquidation by the noncommercial side
- Fundamentals: Bullish
- The Dec-March futures spread has seen its inverse strengthen to 3.7 cents, an incredibly bullish read on supply and demand.
- The headline “why” to the market’s “what” has been “China is Buying up US Cotton…”
- The Dec-March futures spread has seen its inverse strengthen to 3.7 cents, an incredibly bullish read on supply and demand.
- Seasonality: Bullish
- The 5-year seasonal index for December cotton shows it tends to rally through the end of November.
- Price Distribution: Bearish
- The December 2021 contract at $1.1779 is in the upper 4% of its price distribution range, based on weekly closes only dating back through the 2011 contract.
- Implied Volatility: High
- December futures 36%
- Theoretical Positions
- The December contract exploded during October, led by continued bullish futures spreads.
- My concern is recent noncommercial long-liquidation as it could lead to a top in the market.
- If long Dec futures
- Look to roll to the March given the strong inverse in the futures spread
- Keep a stop in place underneath the previous 4-week low in March futures
- If long cash
- Run a sell stop below the previous 4-week futures low
- Or sell on a technical reversal pattern in futures.
