On Friday, cotton price updated the 3.5-year high. After that, a small correction started. Will the cotton quotes continue to decline?
On the daily timeframe, COTTON: D1maintains the rising trend, but its rate has slowed down. A part of technical indicators formed reversal signals. A downward correction of quotes is possible in case of a decline in global demand.
- The Parabolic indicator gives a bullish signal. It can be uased as an additional support level, which needs to be overcome to open a Sell position.
- The Bollinger bands have markedly widened, which means higher volatility.
- The RSI indicator is above 50. It came out of the overbought zone and has formed a negative divergence.
- The MACD indicator gives a bearish signal.
The bearish momentum may develop in case COTTON drops below the last fractal low at 77. This level may serve as an entry point. The initial stop loss may be placed above the last fractal high, the 3.5-year high and the Parabolic signal at 80. After opening the pending order, we shall move the stop to the next fractal high following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level at 80 without reaching the order at 77, we recommend cancelling the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
Position: Sell
Sell stop: below 77
Stop loss: above 80