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Green day for cotton market
13
Sep '08
Finally, a green day after seven consecutive red candlesticks. Overnight was slightly positive anticipating friendly news from the USDA S&D reports. However, cotton ending stocks increased (page 3 in attached PDF), but we did get some mixed bullish reports from corn and potential problems with soybeans which helped push cotton higher. We set the high of the day early but ran into good scale up trade selling.

After Chicago reopened only slightly higher, the gains came off in cotton. We still have enough concerns about the northern hemisphere crop that we were due for a bounce after seven straight sessions of losses. Volume was average with 17,000 futures and 9,000 options, but the COT report on page 2 shows that non-commercial specs continue to decrease longs and add shorts.

Cotton could be setting up for a much needed bounce, but we need to hold the current lows at the moment. The stock market managed a nice reversal this week from the lows and the dollar had a significant correction from the high set yesterday. The break in oil is starting to have some positive effects on the economy as well as the stronger dollar.

We could be setting up for a 4th quarter rally in oversold equities and at least in the short term commodities look like they may have bottomed out since we still have several weeks before the harvest and growing concerns about the wet cool weather.

We are holding the lows near 63.50 which is the same level K'08 bounced from earlier in the year. We are getting some good fundamental support, but the technicals are still negative.

Considering the low open interest in cotton and the holiday mood from Ramadan, cotton is in a tailspin and will need some good sales or spec support in order to rebound. We continue to test the lows and it is hard to say where the bottom may be, but it feels like it is close. This will depend on outside markets, but a short term bottom may be in place near the 63 cent level?

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