Cotton volume picks up on Aug 27

28 Aug '08

2 min read

Cotton volume picked up today as we broke out of the recent sideways trading range. Tropical storm Gustav is headed into the Gulf of Mexico and there is a threat to the off shore drilling platforms and that pushed oil prices back near 120.00.

Grains remain at the top of the recent range and metals are off the lows as cotton works toward heavy resistance near 72 cents. Volume was above average with 15,000 futures and 14,000 options as cotton found some support on short covering into scale up trade selling.

Export sales tomorrow should be on the low side as new sales have slowed down considerably after peaking when Z'08 broke 67 cents. This looks like another selling opportunity, but in the short term we still have uncertainty about the crop which will keep the downside limited.

Cert stocks are slowly coming down with small decerts, but open interest remains at season lows and does not show any signs of breaking out any time soon. Technically we have some upside momentum, but it will be tough to break through 72.00.

Technicals turned friendly last week as MACD started to cross higher in cotton made a nice run to the upside. Although volatile, the market is well traded in the range.

We ran through some correction, but buying interest would come through to prevent the market from falling off. Considering the low open interest in cotton and the lack of demand, cotton feels like we may continue in a sideways trading range up to heavy resistance at 72.00.

This will depend on how much the rebound in outside markets can follow through, but the short term upside looks limited and we may see a correction in cotton if we cannot break through 72.00 cents.

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