Cotton markets dip again

May 15, 2008 - United States Of America

Cotton fell below 70 cents today after a steady climb from the recent lows set back on May 1st at 68.52 c/lb. The market fell back below the 9-day moving average and the MACD is threatening to cross back down which would be very bearish. Overall, demand and good scale down buying can be found under 70 cents, but the market also finds heavy scale up resistance at 72.00 cents and has also been unable to break the May 1st trading range high at 72.43. Volume has been light with only 16,000 futures and 13,000 options as volatility has also been on the decline recently.

Plantings are behind schedule, but due to the smaller amount of acres, there does not seem to be any concern over the soggy cool conditions that we are getting across the cotton belt currently. West Texas as well as the Memphis Eastern are getting good moisture with another 2-3 weeks left to get cotton planted. Sales and shipments tomorrow should remain firm as we are seeing CIF sales as well as consignment business due to the rising cost of oil and fuel surcharges which the shipping lines are passing on to the shippers.

Cotton market is still looking very fundamentally bearish as demand remains hand to mouth. The MACD has made a positive cross in the recent sessions, which is normally a buy signal. However, the movement suggested by the MACD cross needs support by decent trading volume coming from spec buying activities, which we have not been able to seen lately.

We first need to break that high set at 72.43 before we can pursue further upside targets heading towards significant resistance near 73/74 cents. Soybean and energy prices will continue to offer major influence on the cotton market in the short term as they are both holding firm with good technical buy signals.

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