The Cotton No.2 contract traded on the Intercontinental Exchange (ICE) is the benchmark for the global cotton trading community. The Cotton No.2 contract fell almost 2 per cent to settle at 72.83 cents on September 12.

After registering an all-time high at 227 cents in March 2011, the cotton No.2 contract peaked out and started to decline. Since then, the contract has been on a long-term downtrend, forming lower troughs and lower peaks. Medium-term trend is also down. In May 2012, the contract, decisively, breached its significant long-term support at 85 cents.

However, the contract prolonged its downtrend until it marked this year’s low at around 66 cents in June and changed its direction triggered by positive divergence in daily indicators.

This short-term uptrend of the contact is loosing its positive momentum after knocking resistance at 76 cent in late August this year. The Cotton No.2 contract is hovering well below its long-term moving average of 200-day moving average.

It also appears to have resumed its medium-term downtrend. It has potential of declining further and testing supports at 69 cents and then at 66 cents in the ensuing weeks.

A conclusive tumble below 66 cents can drag the contact down to 60 cents and 55 cents in the medium-term.

On the other hand, strong rally above 90 cent is required to alter the contact's medium-term downtrend and take it higher to the range between 100 cents and 105 cents. Immediate key resistances for the Cotton No.2 contract are at 77 cents and 85 cents.

(This article was published on September 13, 2012)
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