Cotton Traders Have “Lines Drawn in Sand”

Cotton market bulls last Friday absorbed a bearish USDA report by initially trading sharply lower and then reversing course to close higher, nearer the session high and at the weekly high close, basis nearby March futures. Price action last Friday also scored a bullish “outside day” up on the daily bar chart, whereby the high is higher and the low is lower than the previous session’s trading range, with a higher close.

While the bulls are a bit encouraged by the cotton market’s ability to rally in the face of some fresh bearish fundamental news, they know there is much more near-term work to do on their part. The bulls know that part, if not most, of the reason for Friday’s surprising gains in cotton futures were due to the strong gains in the grain futures that spilled over into the cotton market. There are two key technical levels in March cotton futures that are now acting as near-term “lines in the sand” for both the bulls and bears.
The bulls need to strongly defend solid near-term technical support at last week’s low of 52.85 cents in March cotton. A close below that key price level would produce serious near-term technical damage to suggest a renewed downtrend and a challenge of the contract low of 50.81 cents, scored in late November. The cotton market bears need to defend strong overhead chart resistance at the December high of 57.05 cents, basis March futures. Any price move above that level would be considered near-term very bullish to suggest a fresh price uptrend, including a challenge of major technical resistance at 60.00 cents a pound in March cotton futures.
Near-term technical resistance for March cotton is located at last week’s high of 55.19 cents, at 55.50 cents and then at 56.00 cents. Near-term chart support is located at Tuesday’s low of 54.30 cents, at 54.00 cents and then at 53.35 cents.
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