NY cotton futures continue to drop this week

02 Nov '13

4 min read

In view of this we still see it as a distinct possibility that the Certified Stock, which has grown to over 180’000 bales (including bales under review), may get sold, especially if futures were to move even lower. We therefore don’t particularly like the risk/reward in shorting the market at 77 cents! At the very least we would advise to use bearish options strategies rather than short futures to bet on lower prices.

So where do we go from here? Trend and price action are still pointing lower at the moment, however the market has closed down for ten consecutive sessions and momentum indicators like the RSI, Stochastic and MACD are all flashing oversold signals.

This and the divergence to the physical market suggest that the drop in NY futures may be overdone and that prices should begin to stabilize. Also, we assume that spec longs have liquidated most of their longs by now, while the trade is not likely to go aggressively short in the mid-70s.

In other words, selling pressure is probably going to subside and buyers should start to move in. A low of 74/75 cents still seems possible, but we would use that level to enter the market from the long side!

Plexus

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