Cotton futures that already are up more than any other commodity this year are headed for their highest price since February 2012, according to a technical analysis by FuturePath Trading LLC.
The moving average convergence-divergence, known as MACD, crossed above the signal line on Aug. 6, and the gap has widened since then in a repeat of bullish trends seen during rallies in March, May and June. The pattern suggests prices will gain 4.9 percent by October to 96 cents a pound on ICE Futures U.S. in New York, said Paul Kavanaugh, a futures and options specialist at FuturePath in Chicago.
“When the MACD line goes above the signal line, thatΆs my indication to buy,” Kavanaugh said in a telephone interview. “When the MACD goes below the signal, like we saw after the rally in the middle of March, thatΆs an indication to sell.”
Cotton futures have surged 22 percent this year, the most among 24 commodities tracked by the Standard & PoorΆs GSCI Spot Index, which fell 0.4 percent. Global cotton output will drop for a second straight year, shrinking a surplus that sent prices to a 31-month low in June 2012.
“The current rally will continue, based on MACD and momentum,” said Kavanaugh, who predicted prices will top this yearΆs high of 93.93 cents, reached on March 15.
In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. MACD is a plot of values obtained by subtracting the 26-day exponential moving average from the 12-day average. The signal line is a nine-day exponential moving average of the MACD, and provides buy and sell indicators.