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Cotton futures test new lows

01
Oct '08
After a disappointing Monday session, Tuesday's stock market regained part of the losses. In mid-morning trading, Dow Jones was trading at 237 points higher, a 2.29% increase on the day. The loss in equity market yesterday was estimated at one trillion dollars thanks to the 777 point drop.

It won't be surprising that investors will want to drop out of their hedge funds investments and stand on the sideline and watch how the situation will develop. Liquidation by the funds across the board was seen so that their investors could be paid.

More pressure on the market is reflected in more volatile trading. Tuesday NY cotton was seen a 315 point trading range. As the market opened at only 20 points below yesterday's limit down price, liquidation on the screen quickly pulled the price lower.

The official low at 55.11 basis Z'08 was posted just one hour after open. As fast as the price dropped, the market recovered itself just as fast and posted today' high two hours later. Spec hedge number is not much different from a week before, although the specs did reduce their holdings in both the long and short contracts. The net position is currently 0.7% long, a 0.4% increase from the previous week.

The U.S. economic picture is certainly not looking good with the bailout plan rejected by the House, neither is the global picture. The weak economic conditions are hitting Asia as well as Europe and there does not appear to be an end nearby. The fear of economic slowdown is worldwide and the commodity prices are affected accordingly. We're trading in the 50's range and demand should come in at this level.

However, the tight credit situation is proved hard on the mills. It looks very bearish both fundamentally and technically and the MACD crossed downwards not long ago. Thought it's not possible to pick a bottom yet, the deep the drop, the sharper the bounce will be.

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