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Cotton futures fall precipitously

03
May '08
NY futures fell precipitously since our last report two weeks ago, with July dropping 603 points to close at 69.25 cents, while December lost 586 points to close at 77.45cents.

After successfully fending off the bears on previous attempts, the bulls were no longer able to hold important long-term support today and values caved in due to a broad-based sell-off in the commodity complex.

Even though the July contract had already violated its eleven-and-a-half-month uptrend line a week ago, December had so far been able to hold above it, but today it closed below this important trendline as well. This breach of major support may lead to further weakness over the coming sessions, as spec longs will probably reduce some of their holdings, while spec shorts may use it as a trigger point to sell the market.

Earlier today things looked rather promising, not only because July rebounded quite strongly off of Wednesday's lows, but we were also treated to a much better than expected export sales report of a combined 738'300 bales. The report showed widespread buying activity, as no less than 20 different markets were listed, with China taking over 430'000 bales.

The only spoiler was the slow pace of shipments, as they amounted to only 197'500 running bales, raising fears that ending stocks may indeed be surpassing 10.0 mio bales by the end of July. However, while this number may weigh on traders' minds from a psychological point of view, we should not forget that total supply in the US next season will probably be the lowest in 5 seasons, assuming a crop size of just 14-15 mio bales.


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