Cotton and BAL ETF Are Forming a Major Bottom

"Smart Money" commercial hedgers in cotton futures have been basically net long since August of this year. In a hedgers market this rarely happens and so it should be viewed as of major significance for price fundamentals. The commercials typically are net short and use the futures to hedge their underlying tangible commodity position. So what this data is telling us is that the price of cotton futures is so low, that they are completely unhedged for the first time in years.

Additionally on the push to new price lows in November there is a bullish divergence or non-confirmation in the large speculators net positions. This is a hallmark sign of the end of a trend based upon the CoT data.

Additionally, the price of BAL is forming an ending diagonal or three push type pattern with declining intensity and bullish momentum divergence. The set-up is exceptional for a long position here. There are several indicators that could be used for entry. A cross of momentum/ROC above neutral is one. Also based upon the chart, a close back above the June 2012 low, would be evidence that the stop running may be complete, and price is free to move up.

Wedges or diagonal patterns like this often lead to explosive moves, and it seems likely that price will rally above 46.00 on the first push up and take out any stops above the 9-12-14 high before a possible consolidation. However, that would be just the first push in a larger expected move of probable bull market proportions in coming months.