Cotton market looks bearish

November 11, 2008 - United States Of America

Cotton opened overnight strong reaching a high of 44.10 on friendly stimulus news out of China. This carried over into metals, energy and grains, but ran out of steam at the reopening in the morning.

The cotton prices started falling quickly and at one point fell below 40 cents to fresh 6-year lows. We had good scale down demand from mills, but the bearish USDA report for cotton added 2 million bales to ending stocks. Volume was good today with several spreads taking place on 36,000 futures and 11,000 options as open interest fell 17,000 lots to 157k.

Energy prices tried to rally as well as gold, but we just could not get any follow through. Grains did manage to close off the lows and near the highs as we work toward building a much needed bottom. The dollar tried to go down today, but we could not hold it and ended up closing near the highs. All of the factors at the moment point to further downside testing as the stock markets still look bearish.

In order to hold any gains in commodities, we need to establish a trading range in the stock markets. We did close off the lows and have to see how the overnight markets hold up tonight.

Technically we are trying to build a bottom, but it has been a very difficult process. The stock market weakness and strong dollar are two major factors why we cannot hold a bottom. Cotton is still finding good demand at these levels, but the new crop is in full harvest at the moment and that is keeping a lid on the market.

RSI is still in the low 30’s, and MACD is undecidedly making a double cross. So much for an election bounce and it may take until the first quarter to see some significant attempt to invest new money. We are way over due for a rally but if the dollar stays strong that will keep pressure on the markets.