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Cotton market trades lower on Oct 21
22
Oct '08
Cotton tested the lows again today after a limit down yesterday, but we did find good support under 49 cents in Z'08 and bounced hard into the close. There is some feeling the low hit last week at 45.66 should hold up in the short term as we are seeing some consolidation taking place here in commodities and equities. However, we did see some drops in the stock market today on very volatile conditions and the grains, energy and metals gave back some as well after a good bounce yesterday.

Volume was average with 11,000 futures and 10,000 options as the main feature continues to be the rolling of short Z'08 contracts into a narrowing forward market. We are seeing good scale down mill demand when we get the front month under 50 cents. This equates to landed prices in the low 60's where mill are comfortable covering the end of 4th and early first quarter'09.

The mills are still hand to mouth and not chasing this drop too far forward. Outside markets will still be important even though cotton has divorced itself somewhat over the short term. The dollar is also very strong and keeping the commodities in check while the equity markets keep suffering from the financial uncertainty.

Technicals are starting to look better after a few up days last week and a nice bounce back today. MACD is starting to turn north for the first time as we have reached heavily oversold signals which are due for a bounce.

RSI is at 37, but the fundamental picture looks good and we are starting to stabilize in grains and energy prices. 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 these all time highs.

Ecom USA

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