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Mills running low on stock, cotton market still bearish
Oct '08
Cotton tested the lows again Wednesday session following the strong close from yesterday, but we did find good support under 49 cents in Z'08 and bounced back to unchanged level. 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 hefty loss in the stock market today on very volatile conditions and the grains, energy and metals gave back some gains as well after a good bounce beginning of the week.

Volume was thin with 13,000 futures and 3,000 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 forth quarter '08 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.


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