In the previous Cotton post we were bearish with a Head & Shoulders in two time frames.  The first day of movement proved accurate as the market moved right between our two initial targets.  It rallied back rapidly which has us cautious from here and digging in a little deeper.

Overall we were targeting a move to a gap on the daily chart at 76.  And with the market still below the Head & Shoulders formation and still trading in a downward range, it seems like the short trade should still be on…  If Cotton breaks below 82, it might then head to the gap on the Daily Chart at 77.


But here’s the concern, a deeper look at an Elliott Wave Count paints the picture bullish in the near term.  After our short term Head & Shoulders target was hit the market rallied back to the underside of the Head & Shoulders very rapidly, in what can only be described as an impulsive wave (since none of the movements overlapped).  This led to a deeper look, particularly in regards to an Elliott Wave Analysis.  Given the scope of the rally back from 82 and the nature of the downside waves overlapping in (2), this looks more like a bullish setup on the minute chart.

The Bulls would argue that on the daily chart the Head & Shoulders doesn’t really have a neck (invalidating the formation), and that the uptrend is strong.  They would also say that since the rally that started in October 2017, there is only one Elliott Wave count, and it’s impulsive, but it could also easily allow for a retracement to 77 on the daily.

The Bears would say there is a gap to fill, proposed Chinese Tariffs on US Cotton would leave us with a heavy supply, and that the market is rolling over from current levels, which often results in further movement down.  Despite the arguments to both, the Elliott Wave count above looks most compelling in the short to medium term, but this market could do anything… and tomorrow’s movement will hopefully clear it up.

If Cotton holds 82 and rallies strongly, then it may very well continue to rally to 87.5 – but if it breaks 82 it seems likely to head to 77.