December cotton futures on the New York Board of Trade have recently formed a descending triangle pattern on the daily bar chart. These triangles are usually bearish. Prices are in a two-week-old downtrend from the August high of 57.75 cents a pound. A bearish downside “breakout” from the descending triangle pattern on the daily chart would occur on a solid price move below technical support at the base of the triangle pattern, located at 54.00 cents in December futures.
See, too, on the daily chart that the shorter-term moving averages I follow (9- and 18-day) have recently produced a bearish crossover signal, whereby the 9-day crossed below the 18-day moving average.
click chart to enlarge
The cotton bulls can argue that Tuesday’s price action was encouraging, as prices probed down to the solid support level of 54.00 cents, and then rebounded sharply. It will take a close above strong near-term technical resistance at 56.00 cents in December cotton to provide the bulls with fresh upside technical momentum to suggest a fresh uptrend can get under way.
A close in December cotton futures below solid support at 54.00 cents would be significantly bearish to suggest a retest of the July low of 51.20 cents, or below. Major psychological support in nearby cotton futures is located at 50.00 cents a pound.
NOTE: I have recently completed an e-book called “The Art of Effective Stop Order Placement in Trading Markets.” You can buy it for $14.95 by clicking on the “SUBSCRIBE” section of my website at www.jimwyckoff.com . If you are like many traders who feel your protective stop placement methods need improvement, then my e-book will be a valuable resource to you. I also recently finished an e-book entitled “62 Rules Used by Profitable Futures Traders,” which sells for $19.95. That’s the best trading investment for 20 bucks you’ll ever make.–Jim