Cotton traded lower overnight which fed off of the negative retracement on Friday. We set new lows @ 64.15 electronically, but by the time the outcry began, the market was pushing higher and set the high at 65.44 early in the day. Grains were mixed to neutral, but the stock market set record intra-day highs and was up over 1% most of the day.
There seems to be a level of concern about the economy, but the market continues to rally. Volume was average with 20,000 futures and 15,000 options as the market traded in a narrow range roughly between 64.50 and 65.00.
China began a one-week holiday and this will lead to further weak export sales in the coming weeks as we enter the beginning of the fourth quarter.
There is optimism, but concern as the technical picture in cotton has turned more bearish and the specs may have an overall spec long position tomorrow near 30%. There was some profit taking on Friday, but the open interest has remained high and we are expecting that they are reaching a point which is hard to sustain long term.
Technically, the market finally reacted to the overbought signals based on the 3rd quarter profit taking that entered the market. The heavy support at 65.00 was broken as well as the 9-day moving average. We also broke the bottom line of the upside trend channel that has been in place since this rally started 10 weeks ago.
This should lead to another test of the lows on Monday with the next major support line near 63.50. However, even though the technical picture looks negative and the fundamentals are very bearish based on the lack of demand, we still need cooperation from outside commodity markets to have a successful correction.
Spec position of the week ending Sep 28 was decreased by 0.6% to 26.4% from the week before.
marketing@alchempro.com
