Cotton

Cotton has been on an impressive up move since mid 2010 appreciating over 150%.  However, we are starting to see some signs of a possible H&DS top forming.  The chart shows the Left Shoulder, Head, and Right Shoulder have all formed.  We are now just waiting for confirmation, which would be a close below the red neckline.  A mini double top formed and was confirmed Tuesday.  This formation projects down to around 183.00.  If the H&S formation gets confirmed the objective is down to around 151.50.  The LS was formed with an engulfing pattern, the H formed with a shooting star, and the RS formed with a piercing line. All reversals were confirmed with bearish candlestick patterns and shows stiff resistance up at these levels.  We also saw some divergence on the RSI between the LS and H. 

Finally we got a bearish crossover on the MACD soon after the H was formed and have gotten closes under the 10 and 20 DMA’s.  However, we do face some challenges to the downside.  Cotton has found support the past 3 days at the rising window from the gap up made back on March 18th.  You also have a 5 point upward sloping trendline in the same area, which also happens to be the neckline of the possible H&S top that maybe forming. 

Friday did find some negative trading: new highs on selling.  This rising window/neckline area will be a key area this coming week.  If we can get a break below 192.23 on Monday you could see a good move lower.  This move would be made with a pivot of less than 50%, which is bearish AND with a 2:1 skew, which is also bearish.  Initial support would be seen around the 183.00-186.00 area.  This zone features horizontal support, the double top tgt, monthly and weekly pivot point support and a 50 DMA.  I could see a move to this area and then a possible retest of the neckline.  Let’s see how this week plays out.