Market to see more upside next week

31 May '08

2 min read

We had another narrow trading range today, but the volume picked up as we ended the bearish month of May (N'08 -732 points). Cotton is not following the support we had today from higher grain prices like they have done in the past. It seems that the specs involved in cotton are now testing the short side for the first time in over a year.

Based on the commitment of traders report today the index funds increased shorts by 3,000 lots and the non-commercials increased 12,000 shorts as the commercials took the other side as they hedged new sales (see page 3). Volume was good today with 25,000 futures and 27,000 options as the market is hovering in the middle of the recent trading range established on Wednesday at 66.00 c/lb.

Export sales were on the low side as expected with only 160k bales, but shipments continue to be near the 4-week average of 250k bales . With only 10 weeks left, that level will not help us reach the USDA target as the 07/08 ending stocks could break through 10 million bales quite easily (see page 2 in attached PDF).

Based on the technical and fundamental bearish tone in cotton as well as the recent spec selling, we could see an attempt to push N'08 lower which should pull down the back months as well. We are reaching an oversold level in RSI @ 29, but the MACD is still negative as you can see under the chart. Oil and other commodities put in modest gains today and we will need to see more upside next week to stop the slide in cotton.

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