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Cotton market trades in a very narrow range
31
Jul '08
Cotton continues to test the highs but failing to break through good scale up selling resistance near 75 cents. Grains traded neutral to lower most of the day, but found some late day strength along with oil which helped the CRB put in a positive day.

However, we are still trading cotton in a very narrow uneventful range which continues to indicate we are eventually going to have trouble sustaining these levels. Fundamentals are still very bearish as demand has gotten very quiet with NY at theses levels.

Futures volume was weak again today with only 7,000 lots, but 14,000 options was above average as there was an increased volume of strangles today which indicates the market is comfortable trading the current range.

We are seeing good support in oil below 122 dls/bl and in the short term the CRB index does look oversold and due for a bounce. However, based on the lack of spec participation in cotton and without any bullish technical or fundamental information, looks like more sideways consolidation could take place.

Take a look on page 2 (attached PDF) with a more detailed technical break down and our short term opinion of the market. As long as cert stocks remain at the highs and open interest remains unchanged at 220,000 contracts, we don't anticipate any big swings up or down in the near future.

NYF cotton prices are finding good downside support with the uncertainty of the Northern Hemisphere crop remaining and good hand to mouth buying on dips. However, we still have 114 days of time and descent volatility left in the Z'08 contract which does not expire until November 21st.

MACD has crossed and RSI is closing in on the neutral 50%. We are now at the top of the current trading range, and the range bound consolidation is still likely to last into the near future. At these levels, new sales are very difficult to make as mills wait for better prices to cover forward deliveries. Expect to see further testing of the highs continue but eventually come back down.

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