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Cotton market bounces back strongly

01
May '08
Cotton experienced a bit more action today as bearish options lead to early weakness followed by a strong bounce off of 4 month lows at 69.54 in N'08. The day started out on light volume awaiting a predictable Federal reserve report at 1:15 CST, but the stock market was trading at 2008 highs and the stage was setting up for pull backs across the board in commodities.

All the grains as well as other commodities took an early sell off, but did find some good scale down spec support on the lows as the stock market came off after the announcement. Volume in futures was 19,000 and 12,000 options as we look like a short term low may be in and possibly be setting up for a sideways trading range.

The Federal reserve made the 25 point cut, but did leave the door open for a possible pause looking forward to the next meeting set for June 24, 2008. Plantings for 08/09 are picking up and we now have 19% cotton planted which is slightly lower than the 5 year average.

Conditions are drying out up north for other commodity and looking good for cotton as we will have some seasonal pressure until mid to late May. The spec support showed up today on the lows, but we will have to analyze open interest tomorrow and see if there were any large increases as the short term picture for cotton still feels weak.

We are in a negative seasonal pattern as we approach the large Northern Hemisphere plantings to add to the fundamental weakness. Technically, we broke the strong support line at 70 cents in N'08 but did find good underlying buying and closed near the highs.

The cotton market feels like we could have set a short term low and may be ready to trade sideways until more information is uncovered. May 1st tomorrow is the International Labor Day everywhere except the United States. That should set us up for a quiet long weekend as we should see a similar sales and export report as the market will struggle to find momentum to make a run at the highs.

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