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Light volumes in cotton futures
Jul '08
Long holiday weekend equals meltdown in almost every market including commodities and stocks. Grains were down overnight which triggered a test of the lows in cotton, but after the morning sessions started looking weaker, cotton followed the grains to limit down levels before rebounding slightly.

Cotton managed to traded synthetically at one point in Z'08 at 71.55 as bearish options fed the sell stops and the lack of demand. Volume was light with only 17,000 futures and 21,000 options as the cotton market seems to be searching for a bottom.

The commodity index had ended last week strong as oil had set new highs, but the profit taking spread throughout the markets this morning and may carry on when the Far East opens tonight. The spec hedge report showed a longer position this week almost reaching 10% as they have been slowly creeping longer over the last several weeks from a low of 1.7% on June 17th.

Technically, the market looks bearish, but the RSI is reaching oversold levels at 31%. The 9-day MA is getting ready to cross the 50 day moving average so this may set us up for more downside testing as the specs now have room to sell. The crop progress showed some improving conditions from last week and we really don't have any significant news coming out until Friday's USDA S&D report.

The widespread sell off indicates that the commodity market has reached overbought levels and we will have to wait and see where the bottom will hold in the short term.

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