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Cotton futures sink to six year lows

13
Nov '08

Another weak day in commodities and equity markets as the dollar rallied and we tested the lows. Cotton hit a 6 year low made in June 2002 after we were recovering from the October 2001 low of 28.20 c/lb. The only good news is that we made that low with a much stronger dollar and the month following 9/11 when all markets collapsed.

We do have a very weak global economy at the moment, but we should be skidding into some type of bottom soon. However, oil prices took another big hit today and if they keep falling this hard, the outside commodity markets will follow lower.

Volume was good today with 39,000 futures and 5,000 options as open interest remains at 2 year lows of 153k or half of where we were in March. ICE cotton slipped straight lower upon market open Wednesday session. December contract broke the support level at 38 cents in the early morning.

The low of the day was reached shortly after options pit opened as most of the bearish options strategies hit the floor. We had a nice bounce mid session when dollar subdued a bit. Spreads with Z'08 at the front month kept coming in with the majority of the volume still in Z'08/H'09 rolls.

The trend is certainly lower and it may take until next year before we see a significant change in the direction. The commodity market looks like it is due for more downside as we finish out this year. We just cannot see any positive news for the markets in the short term and expect to keep the downside trend in place.

Technically we are trying to build a bottom, but it has been a very difficult process. The stock market weakness and strong dollar are two major factors why we cannot hold a bottom. Cotton is still finding good demand at these levels, but the new crop is in full harvest at the moment and that is keeping a lid on the market.

RSI is in the mid 20's, and MACD is undecidedly making a double cross. So much for an election bounce and it may take until the first quarter to see some significant attempt to invest new money. We are way over due for a rally but if the dollar stays strong that will keep pressure on the markets.

ECOM

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