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Commodity index remains under pressure

Jan '09
Cotton keeps pushing higher with good fund buying on dips as we set a new 9 week high and closed 12 cents from the low set back in Mid November. Demand is still very quiet but technically things are still positive. Open interest fell 1,000 contracts overnight as we are just barely off the 2 year lows for open interest at 129k and volume remains average with 12,000 futures and 6,000 options.

The commodity index remains under pressure as oil struggles to go higher and the equity markets are also giving back some early year gains. We did see a good bounce off the lows so we may be setting up for a positive day tomorrow ending the week. USDA report on Monday could lead to some profit taking if the news is bearish, but we are in the positive seasonal time of year and may see the trend continue to test the highs.

Export sales were friendly with over 200k in sales and shipments which is way above the 4-week average. China was the big buyer taking advantage of import quotas that were expiring at the end of the year.

Technically, cotton is starting to cool off some, but the moving averages have crossed and the MACD has not crossed lower. Open interest has started to rise and the specs are turning long so the momentum is there for more upside.

Cotton broke through the sideways trading channel 40/48 as we set a new 8-week high to end the year. RSI is at 62 and the momentum is certainly looking more positive as we start to enter the more friendly seasonal demand period but the equity markets are struggling and that may spill over into commodities.

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