Cotton. The fiber of most clothing. Most people know what cotton is and wear it just about every day. It is a commodity that is very widely used, yet it is rarely talked about in trading. For starters, cotton is on the rise. After bottoming out is early November, the World Agricultural Supply and Demand Estimates were released and hinted to some interesting news. The US production is declining, though yields were high. In other words, US farmers grew less cotton in 2012, but the but the production per acre was up and therefore offset the decrease in supply. And cotton seed purchases for the 2013 crop is way down, which means that less cotton acreage is expected for 2013.
All this being said, imports into China is increasing and the demand in the US is declining. So if we filter out the noise, global demand is increasing, and supply is decreasing, therefore the price of cotton should be increasing; and it is.
The char below is a daily chart of March Cotton futures with a 3, 21, 65 SMA. Notice that when it broke the 65 day average at the beginning of December it had a strong push up, consolidated at the beginning of the year and then has taken off. As long as cotton stays above .7700 (that is $0.77 per pound) cotton will remain bullish. Its next big resistance is at .9000, which we saw back in April and May of last year. It might be best to see if it pulls back to the .7800 area before buying, but if it takes out the .8400 high, the next stop will be .8900-.9000. Good luck trading!
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