Is cotton topping?
futures experienced a generational rally making all
time highs above $1.50 per lb. in November. After a
sharp downward correction in mid-November, cotton has
headed back up. Commodities analyst Shawn Hackett says
the price action in cotton is reminiscent of other major
spikes that typically end in a huge sell-off.
fact, Hackett says that cotton could be offering one
of the best ever shorting opportunities and that the
trigger may have hit today, Friday Dec. 10 (see chart
to Hackett, in past spikes, cotton typically provides
an opportunity for shorts as the market usually attempts
to test a high after an initial correction. He says
cotton will often retrace 65% of the initial correction
before once again falling precipitously. Cotton retraced
approximately 65% of the move off of the early November
continuous weekly chart below shows this happening in
1973 and again in 1976. In 1973 cotton peaked, fell
sharply, tested the high and then dropped more than
50% in less than a year.
cotton settling well off its high on Friday, Hackett
says that a high may have been made. He is not sure
the high is in and recommends tight stops with every
short, but adds once a top is made the fall will be
sharp. He expects cotton to drop below 80¢ by as early
as the first quarter.