Cotton breaks long term downside trend

12 Jun '08

2 min read

Cotton broke out of the long term downside trend channel which was over 2 months old with some help from grains and oil. Seems like the good ole days are back as we set off buy stops and even traded synthetically in N'08 as high as 100 over the limit at 70.25.

We did start to come off a bit on the close as the July/Dec spread narrowed in to as low as 700 points, but the grains all locked up higher and we should get some good carryover strength tomorrow. Volume was above average with 52,000 futures and 19,000 options as volatility is getting stronger lately above 30%.

Export sales tomorrow should be lower as the business had started to slowdown last week. The dollar and the stock market fell hard again today as oil and the commodity complex gained almost 3%.

Open interest was unchanged overnight, but N'08 fell again by 6,000 contracts as there are less than 80,000 contracts left to roll. We are seeing strength mainly related to concerns over new crop problems and with a possible taker for N'08, this rally could go higher in the short term as we approach N'08 expiration.

Technically, the MACD is crossing higher this week and RSI has room to go higher at 52. The upside resistance gets stronger above 70 cents but after breaking the downside trend channel, the next serious resistance is at 72 cents. With such a strong bounce in commodities across the board, the low established on Tuesday at 63 cents should hold up through expiration.

We are setting up for a seasonal high in the short term as all commodities are testing contract highs or on them. Cotton will continue to follow the other commodities prices higher as the dollar and equity markets struggle.

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