We had another early sell off as we set a new contract low but managed to bounce off of the 3 year support line at 45.50. See page 2 as it shows a continuous monthly chart for cotton over the last 10 years. Notice the line which represents strong support at the 45.50 level as we have bounced there several times over the last 3 years.
More importantly is that the 2001 low under 30 cents was made when the dollar was at its peak and now with the dollar 30% lower, this 45.50 cent level for cotton actually represents an adjusted price today under 30 cents. Volume was better than average at almost 20,000 futures as well as 20,000 in options.
Demand has been very strong over the last 2 weeks and we have found fundamental support for cotton even for shipments into the first quarter at fixed prices. The stock market also made a knee jerk reaction today after falling over 400 pts to the low 8,000 level where we also have long term technical support.
The 1987 crash also occurred in October and after a 45% fall as well, by the end of the year it had made back 20% of that sell off. Cotton made a similar hard bounce today and closed strong so maybe we can hold this area and at least move sideways to build some kind of technical support going forward.
The U.S. economic picture became a bit brighter this week as the stock markets found some support and this may lead to a commodity consolidation. MACD is starting to turn north for the first time as we have reached heavily oversold signals which are due for a bounce.
Energy and grains also put in lows today but closed higher as the dollar came down on the close. There will certainly be plenty of volatility going forward as everyone agrees that we are not out of the woods yet, but we are seeing a small trend to buy dips instead of sell rallies as there is some demand to buy with volatility at all time highs.
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