The old adage that the market always feels the most bearish near the bottom certainly proved to have some merit in the cotton market recently.
When December traded near 48.00 cents a couple of weeks ago, it just felt like there was no hope for cotton prices to turn around anytime soon and many pundits were actually calling for the market to fall another 5.00 - 10.00 cents.
Now we are 253 points above the contract low and December has managed to close higher in 9 out of the last 11 sessions, while before that it had moved lower in 10 out of 11 sessions. This clear shift in the price action has manifested itself on the chart, which is signaling the formation of a bottom.
Based on today's close above resistance at 50.50 cents in December, we should see an additional wave of spec buying tomorrow.
Most short-term trend and momentum indicators are now pointing higher and our trusted reversal indicator, the 7-day/21-day EMA crossover, may trigger a buy signal as early as tomorrow.
While speculators have plenty of reasons to buy this market, the trade is still decidedly bearish and welcomes any rally as a selling opportunity. It will therefore be interesting to see who has more power in the days ahead.
In order to gauge the strength of the various market participants, it helps to take a look at their current exposure in the market.
As of last Friday, long speculators, which include hedge and index funds, owned about 12.5 million bales (an estimated 5.0 mio of those are actually counted as 'hedge' longs).
marketing@alchempro.com
