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Cotton continues to follow outside markets
06
Sep '08
After yesterday's fallout in the stock market, we got the jobs report this morning showing a 5-year high of unemployment at 6.1%. This triggered more losses in grains which pushed the cotton spot month to a new one-year low reaching almost 63 cents and dragging the Z'08 to new contract lows at 65.61 cents.

Volume was very impressive with 27,000 futures as we ran through sell stops and found good option trading on the lows with over 30,000 contracts which were mostly seen as friendly.

After almost limit down today in cotton and setting new 1-year lows in Z'08, we should be close to a short term bottom. The export sales report was very negative today with only 24,000 new sales last week, but we did get good inquiries on the lows today.

Bond yields were up strong today as the housing crisis gets worse in the U.S. and interest rates move higher. The global economy is taking a big hit right now as Europe and Asia are starting to show the effects of the U.S. slow down. Cotton will continue to follow outside markets, but looking at the lack of activity in the COT (page 2 in attached PDF) don't expect any big moves.

Technicals are starting to turn negative and after today's collapse we will cross lower on the MACD next week. We tested the upside steadily for the last 2 weeks, but have been unable to break the heavy resistance above 72 cents since we broke lower starting back on August 4th. Considering the low open interest in cotton and the lack of demand, cotton was ready to test the downside as we broke the recent low at 66.79.

This will depend on outside markets, but a short term bottom may be in place near the 65 cent low today. We still have a lot of time left in Z'08 as well as concern with the weather over the next several weeks which should support the market short term.

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