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Market trades lower
31
Oct '08
Just when we thought commodities were building up for another run, the dollar ran up and put out the fire. Some more unwinding of foreign currencies in Europe lead to some strength in the dollar and energies, grains, metals and softs all fell lower. Cotton managed to put in another new low, but did hold above 45 cents. Volume was actually above average at 23,000 futures and 7,000 options as we even got a bounce in open interest overnight of 3500 new contracts.

We had very weak export sales with only 58,000 bales and that was well off the 4 week average. There was a 46,000 bale decert which has pushed cert stocks under 1.1 million bales. This is another friendly factor, but there is no reason to see the Z'08 has any real chance of going higher before expiration.

Demand remains hand to mouth even at these low levels and the pressure from the new crop will keep Z'08 from mounting much of a rally. H'09 might be the first opportunity for a run higher, but that may not be more than the mid 50's. We are starting to set up for another possible sideways trading range between 45-55 cents for the spot month?

Technically we tested the low again today, which held up for the most part. RSI is in the low 30's, and MACD is undecidedly making a double cross. It's very likely for the market to keep testing the downside unless the dollar makes a significant fall from these levels. Demand has slowed down after large devaluations in foreign markets making local cotton more competitive.

This could prevent us from establishing a strong bottom especially if there are no major harvest delays. Z'08 seems to be setting up for a weak expiration but maybe we can start to build a more bullish case for the H'09 which will have more bullish seasonal factors.

ECOM USA

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