Supreme Court of Delhi dismissed the case from the US bio-tech company Monsanto (NYSE:MON) against the Indian agricultural company Nuziveedu Seed Limited on violation of rights on genetically modified hybrid cotton seeds Bollgard. Will cotton prices fall?
Theoretically, license cost saving may make cotton production cheaper. Cotton crops in India may rise by almost 14% in season 2016/2017 compared to the previous season despite the 9.6% lower planting acreage. The transgenic cotton grades show good yields. The additional factor for lower global cotton prices may become the sale of 18 thousand tonnes of cotton from the state reserves on Tuesday. The Mali officials expect the national cotton crops to rise by 12% in season 2017/18 from season 2016/17 — up to 725 thousand tonnes. The USDA report on cotton and other croppers for 2017 in expected this Friday. The data may affect the prices.
On the daily chart Cotton: D1 has advanced almost by 50% in recent 12 months to hit a fresh 2-year high. Now they are struggling to correct down. Prices may fall in case of higher global demand for cotton, lower production costs in India and in case of continued sale of Chinese national cotton reserves.
- The Parabolic indicator gives bearish signal.
- The Bollinger bands® have narrowed a lot which means extremely low volaility.
- The RSI has fallen below 50. It has formed negative divergence.
- The MACD gives bearish signals.
The bearish momentum may develop in case cotton falls below the two last fractal lows at 76.6. This level may serve the point of entry. The initial stop-loss may be placed above the two last fractal highs, the Parabolic signal and the upper Bollinger band at 79.6. Having opened the pending order we shall move the stop to the next fractal high following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point.
The most 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-loss level at 79.6 without reaching the order at 76.6, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Summary of technical analysis:
Position: Sell
Sell stop: below 76.6
Stop loss: above 79.6