IFC Markets - Analytics

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    Technical Analysis #C-COTTON : 2016-03-14

    Upward correction from lowest since 2009

    Cotton is correcting upwards after hitting a fresh 7-year low late February. The bullish momentum was triggered by the strong US external trade indicators. US cotton export rose 7% in a week to March 3 still being below the latest 4-week average volume. Will the cotton prices continue edging upwards?

    We believe the news from India could have been another growth factor. The India’s government cut the royalties of the US Monsanto almost by 70% for use of GM cotton seeds by Indian farmers. Now market participants are worried Monsanto will limit collaboration with India which may reduce cotton crops. India ranks 2nd after China by cotton production. It also ranks 2nd after USA by cotton export. The 50% chances of weather worsening caused by La Nina effect persist, according to the US Climate Prediction Center. Most meteorologists believe La Nina may develop instead of El Nino. This is the global climatic and atmospheric phenomenon in the Pacific region which, as usual, reduces significantly the global crops and pushes up the agricultural prices.



    On the daily chart Cotton: D1 is correcting upwards from the lowest since 2009 having surpassed the resistance of the downtrend. The Parabolic and MACD have formed the signals to buy. RSI is on the rise but has not yet reached the level of 50, no divergence. The Bollinger bands have widened a lot which means higher volatility. They remain tilted down. The bullish momentum may develop in case the cotton prices surpass the last fractal high and the first Fibonacci retracement at 57.7. This level may serve the point of entry. The initial risk-limit may be placed below the Parabolic and Bollinger signals, the last fractal low and 7-year low at 54.3. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 54.3 without reaching the order at 57.7, we recommend cancelling the position: the market sustains internal changes which were not taken into account.


    Position Buy
    Buy stop above 57.7
    Stop loss below 54.3

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