From the September 01, 2011 issue of Futures Magazine • Subscribe!

Cotton finds floor after precipitous drop

Hot Commodities

While cotton had a near year-long run up to record highs ending this spring, it now has retraced much of those gains. With this year’s crop not looking much better, some analysts are watching charts closely to figure out the next move.

Shawn Hackett, president of Hackett Financial Advisors, says cotton may be finishing the retracement. “Anytime a market loses half its value, it’s usually time for it to stop going down for a while. Halving of a commodity in a short period of time is usually when someone will look at that as an opportunity to buy, at least for a while,” he says. Hackett expects cotton to stabilize in the short-term with support at $0.94 per lb. and resistance at $1.08 and then $1.20 in December cotton.

Spencer Patton, chief investment officer at Steel Vine Investments, agrees that technicals played a big role in stopping cotton’s downward move. “There is a good chart pattern in cotton where it looks like there is a double-bottom. There was a low in July and a low in August that was a higher-low,” he says. Patton went on to say traders should watch the weather and any indications of crop condition because the USDA already has indicated it may not be very good. Patton put support at $0.92 and resistance at $1.09 and then $1.20 in December cotton.

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