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30 Sep 2010
Cotton futures may be headed to an 11 percent decline, ending a rally that sent prices to a 15-year high, according to a technical analysis by Spencer Patton, the chief investment officer at Steel Vine Investments LLC.
The 14-day relative-strength index and stochastics are signaling that
the price likely will drop to 96 cents a pound within a couple of days
and then slip to 90 cents by the end of October, Patton said.
Yesterday, cotton for December delivery plunged 4 cents, the maximum
allowed, to close at $1.0124 a pound on ICE Futures U.S. in New York.
“Cotton
is extremely overbought, according to the stochastics, but the
indicator is just about to roll over, indicating a good time to sell,”
Patton said yesterday in an interview from Chicago. “Also, the RSI has
broken below 70, which is an indicator that the price is losing
strength and is headed for a pullback.”
Cotton futures rose 65
percent in the past year, as of yesterday, touching a 15-year high of
$1.064 on Sept. 28, on concern that supplies will lag behind demand.
India, the second- biggest supplier, said on Sept. 28 it will delay
overseas shipments by a month. China is the world’s largest grower and
the U.S. is the biggest exporter.
“The fundamentals of cotton are
bullish, but the move has probably been too much, too quickly,” Patton
said. “Long-term support for cotton is at 80 cents, and it should
certainly stay above that through year end.”
Patton, who founded
Steel Vine last year and invests mostly in commodities and equities,
correctly predicted in July that raw-sugar futures would rally to 19
cents a pound.
In technical analysis, investors and analysts study
charts of trading patterns and prices to predict changes in a security,
commodity, currency or index.
Source: Bloomberg