Cotton Technicals
IFC Markets | Oct 24, 2017 09:47AM ET
Rains in India may damage cotton crop
Rainy weather in India may damage the cotton crop. Will the cotton prices grow?
India produces about one-quarter of the world cotton. According to forecasts, the world crop in 2017 will be 127.5 mln tonnes and India will account for 30 mln tonnes. Domestic cotton consumption in India is estimated at 24.5 mln tonnes, exports - 4.5 mln tonnes. The remaining part of the crop is sent to the reserves. In the Indian state of Maharashtra, more than 1 thousand farmers have been poisoned by pesticides, some of them died since the end of September 2017. This may reduce the use of pesticides in agriculture and become an additional factor in reducing the cotton crop.
On the daily timeframe, COTTON: D1 repulsed from the support level of the neutral trend. The further price increase is possible in case of the worsening of weather conditions and the decrease of the world crop.
- The Parabolic indicator gives a bearish signal. It may be used as an additional resistance level, which needs to be overcome before opening a Buy position.
- The Bollinger® bands have markedly narrowed, which means lower volatility.
- The RSI indicator is above 50. It has formed a positive divergence.
- The MACD indicator gives a bullish signal.
The bullish momentum may develop in case COTTON exceeds the Parabolic signal, the upper Bollinger band and the last fractal high at 69.5. This level may serve as an entry point. The initial stop loss may be placed below the lower Bollinger band and the 14-month low at 66. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More 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 level at 66 without reaching the order at 69.5, we recommend cancelling the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
Position - Buy
Buy stop - above 69,5
Stop loss - below 66
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