Commercial Buying Preceding Seasonal Cotton Strength

The March cotton futures tend to close the year strongly. We expect this market to move higher from here through year-end based on the growing commercial trader position and seasonal strength, which should create a bit of a saucer base and bottom.

Beginning with our Commitment of Trader data analysis, you’ll see on the chart below that commercial traders started buying cotton in mid-August, as the market declined. This is standard commercial behavior as they lay hedge their future supply prices in the futures market. Their buying suggests that they expect the recent decline to end, soon.

The commercial traders’ actions are the exact opposite of the speculators. The speculative position is built upon trend following. Therefore, the speculative position grows as the trend matures. Unfortunately for speculators, markets are generally only trending about 20% of the time. We expect this to be another trend that fails to materialize as the commercial bid supports the market and forces some speculative short covering thus, driving the market higher.

Theses are the trading signals generated by our Discretionary COT signals email. Note that the protective stops are always at the swing high or, low.

These are the trading signals generated by our Discretionary COT signals email. Note that the protective stops are always at the swing high or, low.

In/Out of sample testing of our seasonal model over the last 15 years.

In/Out of sample testing of our seasonal model over the last 15 years.

We’ll be advising our seasonal subscribers to take a long position in the March cotton futures. You can get an idea for our expectations from the performance figures on the left. The model has generated a favorable winning percentage while still maintaining a handle on risk. We feel that our risk management is one of the unique components of our seasonal trading strategy. We’ll be risking 5% from the opening price of our entry date. This is more than usual, but it’s dictated by current market conditions. Five percent from the current price of $.8 per/lb will be approximately $2,000 per contract.

We have managed solid seasonal results through our first year of publication. We offer a free trial to the Discretionary COT Signals, as published in the first chart. The COT Signals method has no track record due to its discretionary nature. That is why we offer a free trial. The swings generated in the nightly email generally 3-5 trading sessions. If you’re a mean reversion trader or, that guy sitting at the end of the table with the big stack of chips on the “Don’t Pass” bar, this may be a robust tool for your arsenal of commodity trading strategies.

However, if you’re a hands-off investor, we can trade the seasonal program on your behalf. This route ensures your orders are placed first…even ahead of mine.

Andy Waldock

info@cotsignals.com

866-990-0777

This material has been prepared by a sales or trading employee or agent of Commodity & Derivative Advisors and is, or is in the nature of, a solicitation. This material is not a research report prepared by Commodity & Derivative Advisors’ Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Commodity & Derivative Advisors believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.