This past week, the Dow Industrials finished on the plus side for the week despite having been down six of the previous seven sessions. Volatility in stocks last week was breathtaking and Friday was no exception. Friday, the market looked like it was headed for another losing day but after changing directions multiple times during the day, rallied sharply towards the close.
The cotton market weakness has put US styles into a very competitive position with Indian offers for available business - most prominently, Chinese business where mills still have TRQ's expiring before the end of the year. Chinese domestic prices are generally cheaper than imported cotton. However, the issue of quality problems of their domestic supply is also of serious concern.
While some anticipate March taking the place of December, I am not in that camp; at least not yet. The current liquidation phase of speculative positions in cotton should be nearing an end. I think current demand at this level should provide stability.
The true bull case is still dependent upon a combination of demand, the speculative community and of course the need for cotton to buy acres from competing row crops. Longer term, the possibility of recession would be the biggest fly in the ointment, by far.
Technically, March cotton should find support between the Oct lows: 6560 and 6520, the midpoint of the month long (Aug-Sept) ten cent rally. This should also be an area of fundamental value that would help support a bounce. Also, look for Dec 07 to find increased commercial interest as it nears 600 points below March. However, please note, Dec 08 began detaching itself from the front end of the board Friday in a most impressive fashion.
marketing@alchempro.com
