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Export sales continue at a hand to mouth pace

28
May '08
Cotton traded mostly unchanged overnight as there was some optimism after bouncing off the lows on Friday. However, it did not take long as cotton slid lower shortly after grains opened weak.

Along with a stronger dollar and stock market and oil running into good upside resistance, cotton ran through some sell stops and technical support. Volume was above average with 33,000 futures and 20,000 options as the market closed at limit down in the back months.

When we rallied early last week, the demand dried up and there was good scale up trade selling which would not allow the market to break the downside trend line. There is just a lack of buyers and we will have to find out at what level this will change.

Export sales continue at a hand to mouth pace, cert stocks are growing, planting percentage rose considerably last week and the commodity complex looks overbought and ready for a pull back. The spec long position came out today and fell to its lowest level since May last year of 7% compared to 11% last week (see page 2 in attached PDF). We may see a test of the downside by the specs which could cause the mills to pull back and really lead to some weakness in the short term.

Technically, the MACD crossed back down today and we are setting up to break a key support level at 66.13 set back on Dec 6, 2007. RSI is currently at 30% and the specs are down to 7% long. Open interest has gone up recently and the market has come down so we are definitely seeing some new interest from the specs to go short.

As demand remains hand to mouth and the trade are more vulnerable after the market spike in March, we may see more bearish options that could trigger new spec sell stops. If we don't get some stability out of other sectors in the commodity index, we could test lows in cotton 3-4 cents lower?

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