Without a doubt cotton, like most commodities, has been strongly influenced by outside markets and most particularly the US stock market. An influence from traditional, fundamental reports has been fleeing at best since the early December.
Regardless of the fact that cotton has pretty well ignored it own fundaments pieces of news, it was encouraging that cotton began cautiously stair-stepping higher each day this past week. Cotton's gains seemed to be based on encouraging economic news and decent technical behavior. With the percentage speculative shorts the highest in over two years, another good week could see the bears doing a 180.
The spec/hedge report, Citibank's announcement they had actually turned a nice profit in the last quarter and the fact that retail sales were not as bad as predicted helped explain this week's rally . The increase in furniture and clothing sales on the Commerce Departments monthly retail sales report was extremely encouraging for the bulls. That, along with still another rally in stocks, sent cotton higher as buy stops was triggered
Most of the week's gains came on Thursday when the market presented the bulls with an impressive outside range day to the upside which gave us the sharpest rally in six weeks. Prices topped Friday morning just a shade above 11 ½ cents (1,159 points) over the AWP and right at the 21 day moving average, a key technical indicator. Cotton finished the week on a plus note for a change with May gaining 140 points for the week and Dec picking up 132 points.
As we near the end of the month, traders are beginning to focus more and more on planting intentions. Guesses that I have heard so far run from the 8.01 million acres put forth by the National Cotton Council last month to about 8.5. Informa, the respected research firm out of Memphis, is right in the middle at 8.334 million acres
It is interesting to note, that seasonally, December cotton has a tendency to gain on the nearby months between now and the end of the month. Most particularly the July contract. That same seasonally tendency occurs during the latter part of April through early June. While optimum planting time in West Texas traditionally begins around the middle of May, bears in December cotton could wind up dealing with a multitude of problems not the least of which could be the possibility of drought coupled with any signs of improvement of improvement in the economy. July on the other hand must deal with disposal of Northern Hemisphere crops.
Action in the cotton pit was encouraging but clearly under the influence of the stock markets perception of economic news. Lows were made on Monday and highs on Friday. A close for May cotton above 4320 would possibly signal, at least for now, an end to the month long 950 point decline as it would provide the first close above the 20/21 day moving averages since early February.
However, one above 4385 would confirm the bottoming action and probably trigger a reversal of position for many fund managers. In that case, upside momentum should take May rather quickly to between 4485 and 4595. Should that occur, a close above 4485 would raise the near term objective to 45-47 cents. But on the other side of that coin, fundamental resistance may be evident from 4385 to 4585 as the market attempts to move 12-14 cents above the AWP.
The competitiveness of US quotes continues to keep export sales up for now. However, a market rally could possibly take us out of contention. It is my opinion that it would probably be prudent for producers to keep reasonable offers over the market for loan equities. With only limited demand due to global economic conditions, it is a matter of time that the market must deal with the overhang of supplies in India, China as well as US loan forfeitures.
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