Cotton market to grind lower

April 30, 2008 - United States Of America

Grains were mixed overnight and cotton found little support as it worked under 71 cents. Grains opened the day lower and after a short term bounce, cotton fell to the lows of the day and started to touch key support levels at 70.50. We are very close technically to a bearish picture in cotton.

If N'08 can break 70 cents, we will have a negative technical picture but the fundamentals should look better with increased demand.

Open interest continues to fall gradually and the cert stocks are rising. We are also seeing some other technical weakness in other commodities while the stock market is holding up and the dollar is also showing some strength.

We have the Federal Reserve meeting tomorrow where we are expecting a 25 point cut to 2.00% and possibly a pause in the future on any more cuts. This may lend some much needed support to the dollar which may have a negative impact on commodities over the long term.

We are in a negative seasonal pattern as we approach the large Northern Hemisphere plantings. We have good conditions in the Memphis Eastern areas while beneficial rain has been reaching the much needed West Texas area. The cotton market feels like we could move lower short term with some good buying opportunities if the demand picks up.

The next support lies at 70 cents, and with RSI at 40, there is a lack of buy signals. The general feel of the cotton market is to grind lower and look to buy dips under 70 cents. The entire commodity complex feels weak at the moment and we will have to keep a close eye on changes in open interest.

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