Oh commodities.  They just don’t trade like stocks.

Early this week Cotton broke out of a 6 year falling channel.  It was a picture perfect breakout.  Was being the key word.

It’s now roughly 10% off the week’s high and on verge of falling back into this channel.

cotton

Whenever you consider a commodity trade, you have to look at the commitment of traders data.  Cotton Speculators are bullish while Commercials are very short.  It’s generally not a smart idea to bet against the hedgers as they are heavily involved in the industry.  That proved to be the case this week.

Cotton (1)
Data via FreeCoTReport.com

Moving forward this weakness could continue in a big way as Cotton moves back within the channel.

The best traders reverse their position if the market invalidates their position at an inflection point.  Some smart traders are probably flipping from long to short this week on strength.

Trade ’em well