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Stabilization in commodities to lend support to cotton

05
Jun '08
Cotton had another dip today, but found good support on the lows from yesterday. However, we still traded inside the range set on Tuesday between 65.01 and 63.10. We are looking oversold at the moment with RSI reaching 25, but the specs look like they have more room to sell as the open interest grew overnight while the market fell lower yesterday.

However, we will need to take out the resistance at 65.01 before we can test higher levels. Volume was much lower today and may show some consolidation sideways as we approach first notice day in options on next Friday. Futures were estimated at 19,000 lots and 11,000 options as the market looks for direction going forward.

Export sales and shipments should be strong tomorrow as there was a good deal of sales made last week on the break in NY. Oil prices were under pressure most of the day, but soybeans closed strong.

The market is trying to form a bottom at these levels as good fundamental demand has entered the market, but the technicals still look bearish. We need to see some stabilization in the commodity complex to also lend some support to cotton. Short term direction feels like it will be sideways as we try and consolidate the support line at 63.00.

Technically, the MACD is still bearish but the RSI is reaching oversold levels at 25. Today's low is challenging the 63 cent level basis N'08 and the next support lies in 62.90, which was the low created on August 27 last year. Specs and indexfunds are adding to shorts and we may see the spec position cross into negative territory for the first time in over a year.

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. N'08 now is significantly below the moving average and the near term trend is looking negative.

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