Cotton futures rebounds to finish with triple-digit gains

28 Apr '08

4 min read

Cotton prices started the week under pressure but after four down days in a row and closing losses totaling over 500 points, cotton futures rebounded to finish with triple-digit gains Tuesday thanks at least in part to sharp advances in other commodities, a weaker dollar and sky rocking crude oil.

Cotton prices stabilized fairly well the middle of the week but clearly got caught up in a huge wave of general speculative selling in all commodities on Thursday when the US dollar demonstrated possible bottoming action for the second consecutive day.

An unnerving "contrary opinion" report early last week had indicated a gross imbalance of bearish sentiment concerning the US dollar. The theory of contrary opinion dictates that once everyone becomes bullish or everyone bearish as in this case, look out.

The report indicated far too many traders on the same side of the boat. Readers might remember that cotton registered a 90 percent bullish reading on March 3rd, right before the crash. Readings are never more bullish than at the top or bearish at the bottom.

Additionally, widespread publicity the last week or so on food shortages and rationing of rice at major discount stores helped put the "kiss of death" on the bull run on many commodities at least for this week. Those type stories, once they hit the cable news networks or national publications, often attract low quality, "Johnny-come-lately" buyers who are invariably under financed and very vulnerable.

As has happened so often, when they started to lighten, reduce or get out of positions, the door was too small. Case in point, the day the discount club announced their rationing of rice, rice futures went limit down.

Low exports and another depressing domestic consumption report did not help the bull case but still were not the primary reason for lower prices Thursday (Such as technical deterioration, the general meltdown in CRB and follow-through strength in the dollar).

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