This Cotton Contract Is Ready To Rip

From the Desk of Ian Culley @IanCulley 

“Looks like cocoa and sugar are poised to break out.” 

That’s the first message I saw on my phone this morning as traders across the US were preparing for the upcoming session.

But I wasn’t ready to get behind a tactical move in either cocoa or sugar.

Instead, my full attention rests with one commodity on the precipice of an explosive rally…

Cotton.

Check out the weekly continuation chart of cotton futures:

My eyes have been fixated on cotton since early February.

Buyers were challenging a critical retracement level at approximately 89 to open the year. And they continue to do so, slowly absorbing overhead supply as momentum steadily improves.

Prolonged periods of contraction often lead to explosive expansions in price. Cotton is in the midst of the contraction phase. 

So when will price action expand? And, more importantly, in what direction will it go? 

The daily December contract chart paints a bullish picture, aligning with the weekly continuation chart:

The 14-day RSI never hit oversold as momentum has remained bullish since last fall. Buyers also support a constructive bid, pressing against a critical former resistance level.

Unfortunately, price action around the breakout level hasn’t been the cleanest.

But upon closer inspection, a clear level presents itself:

I’m watching for a break above 89. That level rests just above the August highs and coincides with a key retracement level on the weekly chart.

If and when the December contract closes above its summer high, the path of least resistance leads toward 98. 

I’ll patiently wait, tracking an opportunity to buy strength – but not until conditions permit.

How about cocoa and sugar?

It’s funny, both markets went into the weekend on a high note. My buddy was right.

I’ll have more on those commodities next week as Cocoa forms a potential pennant. 

For now, let’s place cotton at the top of the deck.

Thanks for reading!