The electronic market was lower overnight as wheat led the way at limit down. This weighed on corn, soybeans and other markets in the commodity complex. However, after the dollar continued to struggle and after setting new record lows, wheat started to recover and even went all the way back to limit up at one point but came off to only 30 higher by the end of the day. Cotton rallied close to 80 cents after bouncing off the lows near 77.20 overnight.
We are starting to carve out a new trading range in K'08 with 80 cents finding good trade scale up selling and good fund buying near 77 cents. Volume continues to be strong at 41,000 futures and 23,000 options as we look for this market to take a much needed breather and move sideways until we get more information.
Export sales tomorrow should be friendly and may fuel a test of the highs, but we will have to wait and see how the volatile wheat market behaves going into first notice day on Friday. We will also be getting revised S&D numbers from the USDA early next month.
In either case, the upside momentum seems to remain in place unless we are able to fill the gap formed under the market between 75.12 and 75.28 in the K'08. In the short term we would not be surprised to see the market trade sideways as we wait to get more information on the grains and test the recent support and resistance levels between 77/80 cents.
Technically, we have broken all upside resistance targets and are feeding off bullish commodity sentiment. However, this market is starting to enter overbought territory as we trade the top of the range in volatility, open interest, spec positions, cert stock and relative strength. General market mood is bullish on technicals and outside commodity markets.
We will have to see a pull back in the grains before cotton will have a chance to correct, but we did get our first down day today in seven sessions. Demand will certainly slow down in the short term, but the direction of grains will have a bigger impact nearby.
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