Commodity prices plunge lower as cotton gets pulled along for the ride. We hit the lowest level for Z'08 in almost a year today and we may be setting up for the first real short position attempted by the specs since May'07 (see page 2 in attached PDF). We are certainly seeing profit taking coming from the commodity sector for the first time in quite a while.
We do have a .9% long position in cotton today compared to .7% last week, but open interest went up on Friday over 2,000 contracts which signal that new shorts entered the market during the heavy selling. Volume was much better today with 25,000 futures and 20,000 options as we are starting to see weakness lead by grains but being followed through by new spec selling.
Commodity hedge funds have been rewarded for holding long positions for over 6 years now, but July '08 was the worst loss for commodity hedge funds in 35 years.
Crude oil which fell another 4 dollars today. We are feeling concern by commodity funds which could translate into further losses during August as we await the USDA report next week on the 12th. Demand from mills will pick up with the spot month near 67 cents as that translates into prices landed the Far East near 75 cents.
MACD crossed lower today in cotton and and we broke heavy support at the 70 cents level. RSI is in the 30's and we are getting into oversold territory. Have to see how the grains respond tonight, but there were rumors that one large commodity hedge fund was forced to liquidate some positions today and that seemed like a good reason to explain such a heavy sell off across the board. The commodity index has been sliding since the beginning of July (see monthly chart on page 3 in attached PDF).
We may be seeing the first pull back since this rally began back in 2002 when the USD also started its collapse. If this trend is starting to change, all commodities are due for more of a correction.
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