Cotton market trades on very low liquidity

19 Dec '08

2 min read

The dollar bounced back today and we will continue to see commodities slide if the dollar can find a bottom. There is no doubt the Fed rate cut on Tuesday was a big factor in pushing the dollar to multi month lows and through 50% retracement from the highs. However, we seem to have found a support level under 80 which allowed the dollar a solid bounce today and weighed on stocks and commodities. Volume was average with 8,000 futures and 8,000 options as open interest remains unchanged.

Export sales and shipments were bearish as we expected, but the cotton market is trading on very low liquidity which is allowing big swings in prices as we saw today where the market traded in a 250 point range. Energy and metal prices slid lower today and grains ran into selling pressure. Stocks are struggling near 9,000 as there is just not enough commitment in the long term economy to keep the rally rolling strong at these levels.

Have to see how the dollar behaves over the short term as cotton struggles near the top of the trading range 41/48. Technically, the dollar is very weak and that is lending support to oversold commodities in general. However, we did see a strong bounce today and have to watch it closely. Cotton is starting to build a sideways trading channel 40/48 as we may be testing the top of the range going into year end. RSI is at 50 and the moving averages are getting closer to crossing so the momentum is certainly looking more positive.

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