Multi Factor Interwoven International Cotton Futures Prices Are Bottoming Out

Over the past six weeks, the total price of international cotton futures has fallen by 20%, falling into the bear market. Will cotton price hit bottom?

The iPath Cotton ETF (BAL) index has fallen 30% from its 2014 high, and has fallen below the low of 42 US dollars in 2012. The international cotton futures price has fallen by nearly 60% since its record high in 2011, and is still on the historical bottom of 2012.

　 If The price is going to break down once again, and it will be significantly separated from the years of hyperinflation.

After entering the 2014 high point, the strong cotton market can not continue to maintain. As cotton futures prices contend for a record high of $60 in 2013, the market has a negative Negative divergence, which may indicate that the market will go down. And the negative divergence from the previous high is a good sign: Based on the trend of the market this week, the cotton price outlook may go down. Cotton prices plummeted in the past seven weeks as the short sellers stepped on the accelerator. At present, relative strength index RSI (Relative Strength Index) is at extremely low level. Has the trend of the tug of war been over extended to the downward trend?

Let's look at the latest. Cotton stage Cargo trader's position report:

Observe the blue line and the red line above. Blue lines represent large traders, such as hedge funds or large institutional investors. Such people usually have large numbers of followers. The red line represents a business trader, also known as "smart money", usually composed of companies involved in the spot commodity sector, such as Meng Shandou, agricultural practitioners and so on. Such people generally hold a net short of merchandise because they mainly use futures markets to hedge the risk of price fluctuations in the spot market.

However, every once in a while, business traders will be close to or wholly holding a net long position. When this happens, trend changes usually follow. This is exactly what is happening in the cotton market, and it has happened in the past seven years. When commercial traders turn into cotton bulls, large traders who hold a net long position in cotton usually have a net short. This happened last year. Subsequently, international cotton prices continued to rebound in a few months.

Therefore, we know that prices are potentially supportive, and commercial traders have started to net more cotton futures. Based on the historical trend of five, ten and fifteen years (see chart), cotton prices are usually low in late July or early August. At the bottom of the seasonal trend, prices appear near the end of July. The bottom of the fifteen and ten year models occurred in the middle of August. The five year seasonal trend is bottoming out in late July. Seasonal price increases will last until the end of the year.

If we observe a lot of data, first of all, cotton prices can be supported from the potential price excessive expansion momentum; secondly, business traders also begin to show strong interest in bullish; finally, the seasonal trend also shows that the bottom is usually formed at this time of year. At present, this does not mean that prices must rise. If prices do rise, then it is necessary to see whether it can go back to the 2014 high and test the new resistance line.