So, the forecast suggests two interesting timeframes to be looking to get long coffee between now and year end: October 26th and November 19th.  These are highlighted in the chart below.

Now, let’s take that to the chart.

What’s the chart saying?  First off, look at that beautiful coil.  We have definitely penetrated to the upside.  Can we hold it?  Good question.  Only time will tell.  But, look at this historical resistance around 144.25.  If price can hold above there, I’m a believer.  You see my target up towards 160.  There is potential for a solid trade as this price action unfolds.  Just keep the risk reward ratio in mind and don’t be a chasing fool.  Forecasts have to take a back seat to price action.  They are only guides to get our thinking started.  Price action is the authority.  Watch this unfold.  And as always, see the disclaimer.  Futures are high risk.  I am not offering any trading advice and take no responsibility for your actions.  This is strictly for educational purposes.

Here is the forecast:

The forecast suggests we should be on the look out for:

• a major top around January 24th
• a major bottom around March 26th
• a major top around  May 7th

The next chart is what actually happened this year:

The actual chart shows:

• a high the week of January 30th (in-line with forecast)
• a low on week of March 13th (a week earlier than forecast)
• a high on May 15th (a week later than forecast)

So, the forecast proofs relatively interesting.  The biggest discrepancy comes after the May 15th high.  The forecast indicates the market generally drifting lower.  Yet, prices have been generally drifting higher.  What gives?

First off, it’s just a forecast.  By no means is there any guarantee of accuracy.  But, if there is any faith in the model, what might explain the difference?  Said differently, why might the forecast be “broken”?

Possibly the US Dollar has something to do with it.  As the dollar falls, other assets priced in dollars are rising: equities, energies, metals, and commodities.  Cotton falls into the last category.  Let’s take a look at what was expected of the dollar this year and what actually happened.

The following chart is a simple forecast of the USD for 2009:

Some highlights from the forecast include:

• starts on an uptrend until a major top on February 23rd
• a major high on March 23rd
• a major low on July 25th
• up from their… before rolling a bit later

The next chart is the actual performance of the US Dollar:

The actual performance of the US Dollar shows:

• an uptrend until week of January 23rd (about a month before the forecast)
• a major top on week of March 6th (a couple weeks before the forecast)
• a major bottom on June 6th (a bit more than a month prior to the forecast)
• then the actual price just starts rolling over to new lows…

Perhaps this dollar sinking beyond expectation has something to do with why cotton has been pushed to higher forecasts and the forecast itself is broken?  It’s all conjecture.  But, with the dollar testing lows, and extremely oversold, it’s not a bad time to start thinking long dollar.  Albeit, it may be a bit early for such a trade.  Perhaps in November we will see more convincing follow through in the dollar.  Regardless, if the dollar will rise that will put downward pressure on cotton, which will only reinforce the short position.  Hence, some of my curiosity regarding a the value of a short position in the cotton market.

As always, there is no trading advice offered here.

October 26… possibly 2-3 days earlier.  Keep an eye on this.

The two year cycle seems to be the least interesting of the four that I looked at: 2, 4, 5, and 10.