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Cotton volume back to average levels as open interest continues to fall
29
Aug '08
Cotton tested the highs early, but eventually fell on a late day commodity sell off. We had seen a bounce yesterday on fear from Tropical storm Gustav, but after good economic data was released today, including GDP above 3%, the financial rallied and commodities fell.

Cotton volume was back to average levels with only 11,000 futures and 8,000 options as open interest continues to fall. Export sales were above average with 280,000 in sales and the same in shipments. However, this was not enough to hold the market above 70 cents.

We seem to be caught in a sideways trend channel from 67/72 and this will be hard to break out of in the short term. Cert stocks continue to see good decerts as we had another 40k today, but there is also another 40k awaiting review as we may be seeing the start of new crop cert cotton coming to the board.

We still have the chance of some negative weather affecting the crop over the long Labor day weekend, but demand is still limited as we continue to follow outside markets in a narrow trading range.

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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