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Cotton trades lower
20
May '08
Cotton traded lower overnight on weak grain prices after closing strong on Friday. We continue to be range bound on light volume as the market is trying to grind higher. Cotton fell lower and tested the support near 70 cents.

This held up well and we eventually worked our way higher back to almost unchanged. The volume was light with only 12,000 futures and 8,000 options as open interest continues to grow slowly. We are still locked in the same range that we set back on May 1st from 68.52 to 72.43.

Volume is light and we are not getting the commitment from specs and sales have slowed down. If we cannot break through the upside resistance early in the week, we will probably see some squaring up of positions going into the 4 day weekend. Cert stocks continue to grow as we approach 1.5 million bales.

That along with the spreads in cotton creating the widest contango of any commodity, we continue to lean towards a range bound market. The spec long position went from 10.4 to 11% long and the RSI is at 48 so the signals continue to be neutral and not showing a clear direction.

Cotton market is still looking very fundamentally bearish as demand remains hand to mouth. We closed above the 9 day moving average and could be setting up for a test of the highs early this week. We first need to break the high set at 72.43 before we can pursue further upside targets heading towards significant resistance near 73/74 cents.

The dollar tried to bounce back today and the stock market made some gains as well. Grains and cotton may not have huge upside potential, but the downside also looks limited.

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