Cotton was stuck in a slow inside trading day as the market tried to consolidate from the 400 pts of downfall from last week. We closed above the lows on Friday and after reviewing the overnight electronic activity, we certainly felt the market was ready for a bit of a bounce.
Grains, energy and the stock market had done well over the weekend not to mention the hot dry weather was starting to become an issue for cotton in teh Delta. However, after several attempts to challenge the resistance near 62.00 in Z'07, the market failed to rally and actually hit some sell stops to test close to the lows from Friday.
Volume was average at only 16,000 futures and 12,000 options, but did a good job of closing higher for the day and may be ready to make a push later this week. Crop progress reports today were only slightly lower as the crop still shows signs of being late, but the hot temps are actually welcome in West Texas and will start to become an issue next week if they continue without any precipitation in the Memphis southeast.
We are expecting to see the spec long position come in under 30% for the first time in almost 6 weeks as we noticed good fund liquidation last week. Will also be interested to see the sales and export report on Thursday as we will need to see good sales volume to maintain the current levels reached in NY.
Technically, attached a chart in PDF in order to detail the levels of support and resistance after last weeks break out to the downside. The 9 and 40-day moving averages crossed today and we are not far from the 50-day. The market needs to hold the low set on Friday as it also represents a long term resistance line that now should serve as a support if we are to stay in this new trading range.
Grains did close firm, but the stock market gave back triple digit gains as the uncertainty over the financial crisis continues to linger. Markets still look on the defensive and even though we may be setting up for a short term sideways range, the long term still looks vulnerable to further downside.
marketing@alchempro.com
