The market was trading higher before the open based on friendly grain prices overnight and a bounce back in the stock market which took most of the equity markets to record highs during the day. However, cotton as well as grains gave back some profits above 64.00 as the market fell to the lows of the day where it closed down almost 100 pts.
The stock market later also gave back some of it's record high rally based on some weaker tech stock news that triggered a 1.5% decline in the NASDAQ. Volume was above average with 25,000 futures as Dec/March spreading becomes a bigger factor as we approach 400 pts. Options were quiet with some mixed trades resulting in 7,000 contracts.
We noticed a bit more volatility in the market today with some post close profit taking in the electronic market pushing cotton down almost 50 pts further than the open outcry close. We are not expecting any bearish news tomorrow, but the uncertainty was enough for the market to take some additional profits after the close.
There may be an increase in U.S. beginning stocks as well as a cut in exports and a rise in production. In either case we continue currently in a sideways range between 62/64 as we close near the middle today at 63.00. In order to break out of this range we will need to break 62.15 to hit sell stops and go above 64.50 to find new buy stops.
Technically, cotton tested the upside again today, but failed to make any follow through as we closed below the9-day moving average. RSI is back above 50% and open interest is still over 230k with rising cert stocks and a lack of demand.
Unless the market can break through 65.00, which would represent the top of the current downside trend channel, we will probably be making another test of the 50% retracement level in the near future. This level is almost the same as the 50 day moving average and if this is broken we should see more sell stops and spec liquidation.
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