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Cotton markets to remain on defensive

30
May '08
Market was unchanged overnight but fell lower closer to the options open. The dollar and stock market were friendly early as the commodity markets tried to go higher but eventually failed.

Oil lead the way after we got a neutral to friendly stocks report and attempts to go higher ran into profit taking. Other commodities also fell lower which pulled cotton down close to yesterday's lows.

Volume was above average today with 300,000 futures and 15,000 options as open interest in cotton continues to rise as the market falls. Export sales will come out tomorrow, but cotton seems to be caught in the commodity pull back, but we should continue to see good scale down support near 65 cents in N'08 with upside resistance at 67.

The demand is spreading out to August shipment as mills want to take advantage of the drop in N'08 to cover their third quarter demand. Mills remain hand to mouth so when N'08 goes off the board, we may see a pull back until Z'08 can go lower.

Tomorrow is the last day of the month and the general trend for the commodity speculators is to move back into equities as they are also concerned about CFTC investigations over manipulation in markets during the first quarter.

Technically, the MACD crossed back down yesterday and we broke 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 trades are more vulnerable after the market spike in March, we may see more bearish options that could trigger new spec sell stops. Cotton will remain on the defensive as the commodity markets come down, but we need to break out of Wednesday's intra day range of 65.11/67.20 first.

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