NY futures continued to push higher this week, as March advanced 136 points to close at 66.17 cents, while December'08 gained 130 points to close at 73.80 cents.
The market was able to expand on last weeks gains, as an improving technical picture and strong outside markets invited fresh spec buying. Since finding a bottom near 63.00 cents at the beginning of December, the market has been able to string together a nice uptrend and yesterday this move was given more credence by a bullish crossover of the 7-day over the 21-day exponential moving average.
The last two times this has happened back in May and September, the ensuing bullish trend lasted for 16 and 10 cents, respectively, while we are so far just a little over 3 cents into the current move.
There is one big difference though to the summer rallies we just mentioned, namely that speculators had it relatively easy to push the market higher back then because there was a lack of trade resistance with relatively little physical cotton left to hedge against.
This is not the case right now with a large amount of cotton sitting in the loan against which merchants are willing to sell futures. Overhead resistance emanating from such trade selling has been quite strong this week and there was simply not enough volume and momentum on the buy side to penetrate through this layer of selling.
However, while speculators may get rejected this time and the market may retreat a cent or two over the holidays, we should not lose sight of the fact that the cotton market is part of a much bigger story that goes beyond cotton fundamentals, which, by the way, are not bearish either as we tried to explain last week.
marketing@alchempro.com
