Stock

[Stock]

High_Times_in_West_Texas Cotton_Major_Bull_Run_Ending

Technical Special: Cotton In Final Stage Of Major Bull Run

Last update: 10/27/2010 9:50:05 AM

By Jim Wyckoff

ICE Futures U.S. cotton for December delivery on Tuesday hit an all-time record high of $1.3050 a pound.

The past week has seen futures prices blow right past the previous all-time high of $1.1720, scored in 1995. However, commodity market price history suggests cotton futures are now in the final phase of a major bull market run and it's likely a market top will be established sooner rather than later.

Cotton futures have been in a parabolic phase (extreme daily price volatility) for the past few weeks. This is one significant technical clue the market is in a final phase of climax that will likely put in a top in the coming weeks, or sooner.

Just recently, expanded daily futures trading price limits have been hit on a regular basis. Importantly, the final climax stage of a major bull run in commodity futures markets can see prices appreciate by up to 25% of the entire bull move in a short period of time. So while the cotton futures market may be close to topping out from a time perspective, there could still be much larger price gains produced during a short time span.

One other bearish near-term technical clue for the cotton market is that the Directional Movement Index (DMI) overlaid on the daily bar chart for December cotton is showing bearish divergence.

The ADX line of the DMI indicator still shows the cotton market is an extremely powerful price trend. However, the ADX line is presently not reading as high as it was in late September. This is called bearish divergence. It occurs a market reaches a new high price, but a technical indicator does not correspond a new high, itself, and the indicator actually starts to decline as the market price reaches still higher.

-By Jim Wyckoff, contributing to Dow Jones Newswires (END) Dow Jones NewswiresOctober 27, 2010 09:50 ET (13:50 GMT)