Click on the chart to enlarge it.
We begin our analysis of Cotton from a long-term time frame. This is another quarterly chart of Cotton, spanning a period from early 1998 through July 2004.
As mentioned above, for long-term position traders a large-scale view of the market from this perspective can sometimes offer up a clear opportunity. Once a potential trade of this magnitude has been identified it only takes a couple of minutes each week to monitor the progress of the pattern, waiting on the potential fruit to ripen or, in this case, the cotton boll to pop!
We can see that Cotton has already generated dual Natural Market Channel (NMC) Cross Kiss entry setups and signals in early to mid 2000, complete with Ocean Natural Moving Average (NMA) and Fast NMA resistance at the time of the Cross Kiss (see arrows and text on prices and NMC pane).
Prices declined dramatically throughout 2001 and then began an almost two year counter-trend retracement. This retracement has resulted in the next Ocean sell setup on this chart which occurred at the end of 2003 when NMC generated another ZeroHit and prices were finding resistance at their Ocean NMA (see text on prices and NMC pane).
In addition to a very clean NMC setup, the momentum-based NMM ROC oscillator (bottom pane) had also generated a Slingshot formation by reaching its upper boundary (shown with text on NMM ROC pane). The numerical value of this Ocean tool had also risen to a level not seen since the major top in 1995 (see chart 1), indicating that this downdraft should be very powerful.
This most recent late 2003 NMC ZeroHit setup from below, which resulted in a sell signal during the first quarter of 2004, is the subject of the remaining analysis. Let's now zoom in on the trade in progress during 2004:
(This is the end of Part 2. Go to Part 3.)
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