Market was called lower and opened down as fund and trade selling kept the market on the defensive all day. There were some sell stops uncovered at 54.20 in H'07 which eventually broke through the resistance at 5400 and the 50% retracement level.
The market did find a way to make up some of the losses, but the damage was done and technically leaves the market very vulnerable. Volume was estimated at 16,000 contracts and traded in a fairly narrow range. The firm dollar also contributed to some of the sell off as well as bearish options being done by the trade most of the day.
Export sales and shipments were in line with expectations with only 60,000 bales in sales and 130,000 in shipments. This picture continues to look negative as we go from week to week without seeing any increases in shipments.
We will need to ship double the average amount we have shipped during the first half of the marketing year, just to reach exports of 12 million bales which is 4 million under the estimate by the USDA. The S&D report comes out next Friday and it seems like we should certainly start seeing a correction in that discrepancy.
The U.S. cotton without an export subsidy and the inability to redeem cotton at a spread that make new crop competitive will be very bearish on the U.S. ending stocks and eventually on NY.
Technically, the MACD crossed which is bearish, but we managed to keep from breaking the 50 day moving average. Either way, after such a huge sell off during a short week, the market is vulnerable for further losses. We will just have to see if the funds are willing to defend this area.
Many will be waiting for demand to pick up for U.S. cotton, but this looks very unlikely at these levels. If the 53.50 level is breached which will take out the 50 day moving average, we should prepare for fund liquidation and scale down trade buying that may send us all the way back to where we started.
marketing@alchempro.com
