FUTURES FOCUS: Cotton Away Again
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September 21, 2007
From the low created in the beginning of 2005, Cotton (CT-SpotV) could not break through the resistance met at around 58 cents. Each of the seven times since the 2005 low that Cotton reached this resistance level, prices came tumbling down as steeply as they had risen.
In Chart 1 below we can see how the resistance met after the 2005 low has always been met at the 50% resistance level of a major bull market run from October 2001 through to October 2003.
In June 2007 this resistance was penetrated as prices broke up out of the tight trading range in a strong rally. This rally met with further resistance in July 2007 – highlighted with the blue circle on the Chart below – when it traded at the same price as a previous top that was created back in November 2000 - also highlighted with the blue circle.
It was from this top in July 2007 that prices plummeted back down towards the 50% retracement level and found support on the old tops that were previously a strong level of resistance.
Chart 1 – CT-SpotV Daily Bar Chart
click here for more detail
Chart 2 below shows the most recent price action, starting with the 14 May 2007 rally into the most recent top on 16 July 2007, which is highlighted by the blue circle in Chart 1 above. The retracement from this top came to an end when it found support at around the 50% retracement level of the rally.
I have overlaid a swing chart over the bar chart so that we can see that the pullback from the 16 July 2007 top failed to close the gap created in June 2007. Having failed to close this gap before creating a higher swing bottom on the swing chart was a sure sign that Cotton was ready to recommence the trend upwards.
Chart 2 – CT-SpotV Daily Bar Chart
click here for more detail
The higher swing bottom has given us a good reference range or run up from the low from which to place our ABC Pressure Points tool. The pressure points tool aims to duplicate the previous range and divide it into milestones where we may encounter some resistance on the run up.
Since the low on 7 September 2007 through to 17 September 2007, Cotton has yet to present us with a price retracement for even one day. This is an even greater sign of the strength of this rally out of the low that found support on the 50% retracement of the October 2001 low to the October 2003 high.
Trade Smart
Mario La Marra
Trading Tutors
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