Cotton Futures (ICE Futures U.S.CT) rallied by a very 'big' 8.1% in Monday’s trading session to close at $44.30. Cotton Futures are up by 12.5% over the past five trading days, however, large speculators are extremely short and history shows a strong bearish trend when the stock rallies and large speculators are short in November.
Q: How have Cotton Futures performed in the past when large speculators are extra short in November and Futures are up very big?
A: According to the 10 previous occurrences of this event, EventEdge indicates that cotton has shown a strong bearish edge that peaks 52 trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Monday, Nov. 24, 2008) is Tuesday, Feb. 10, 2009.
Cotton declines in 90% of the cases (9 of 10) by an average of 8.6% relative to the close on the event date. The one rally was 0.9%. The overall return of the 10 cases is -7.6%, which, based on the close of cotton on the event date ($44.30), provides a target price of 40.93.
Click here to analyze this trading idea further in EventEdge.
Robert Kolton is an intern analyst at MarketHistory.com.
