In a two part series last November and December Arthur Field talked about price shocks and shared a simple and more complex model for trading off of these price shocks. The idea was, while we can not know when these shocks occur, we can build models to take advantage of the inevitable reverse moves once the shock runs its course and the market in question is extremely under or over priced.
Cotton futures have been in shock mode rallying from 46¢ per lb. in March 2009 to just above $1.30 this week. Cotton rallied roughly 75% since June of this year moving from 75¢ to above $1.30.
Field expects cotton to offer a sell signal later this week and could make a significant downward move. In March of this year Field shared his Rule of Seven model, (see “Predicting price targets with the Rule of Seven,”) and that projected a high in cotton of $1.2725. Cotton had surpassed that and dipped below it this morning, which could set the stage for a significant move lower. Field will write a follow up in upcoming month so stay tuned.