Candlestick Reversal Pattern Foretells A Decline In The Price Of Cotton

During the past eleven weeks, the price of Cotton has seen a nearly exponential rise

, in concert with the prices of many other commodities (including the prices of Gold and of Silver) and of the major stock Indexes as well. At least in part, this may be the result of a perceived end to the recession, together with anticipated increases in the cost of production and distribution attributable to disruptions in the extraction of crude oil in several parts of the world. However, the Candlestick pattern for the week of October 1, 2010 in Cotton displays a classic "Bearish Engulfing" price bar which is at the same time a variation of the bearish "Shooting Star" pattern. It should be noted, as well, that the immediately preceding price bar was a "High Wave Spinning Top," which in itself is a warning of a possible trend reversal. We think that the implication is clear: Cotton prices are about to fall.

Quite apart from the Candlestick patterns, our Indicators too the Stochastics, the RSI, the MACD, and our own "Chandelle" Indicator among them are warning of a large-scale price decline.

The "Bearish Engulfing" pattern has proven in the past to be especially reliable and powerful. For example, the tall black candle which completes the pattern in a bull market accurately showed the way to price declines in the stock indexes in June 2009, midway in the "Great Rally of 2009," and correctly called the end of that Rally in April 2010.

The immediate target for the anticipated decline in Cotton is the beginning of this recent rise near the end of July 2010, which itself was marked by a Candlestick "Bullish Engulfing" pattern, which is the reverse of the one which we now see. A decline of the magnitude that we expect would drive prices down to about 73 cents per pound.

Candlestick Reversal Pattern Foretells A Decline In The Price Of Cotton

By: William Kurtz

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