Strong grains, energy and metals along with a weak dollar gave way to a stable to higher cotton market but could not hold up for the entire session and eventually closed lower. Overnight activity was friendly and the market made another run at the 64.50 level, but was unable to break through the resistance.
The stock market did come off close to 1% on more long term concern for the U.S. housing market which estimates more bad news is yet to come. Volume was above average with over 40,000 futures which were mostly related to record spread levels between Z'7/H'8 (400+) and Z'7/Z'8 (1,000+).
Options on the other hand were much quieter and more bearish in nature with only 7,000 in volume. Open interest remains above 230k and cert stocks over 600k with new crop loan levels rising on a daily basis. The crop progress report fell slightly last week, but open skies and the harvest moving at full speed will help improve the potential crop size over then next several weeks.
The spec position is not expected to change significantly from 24.4% as the market has been trading in a narrow range sideways between 62.80 and 64.80 over the last several sessions. There is support and resistance at each level that may keep the market in this range until we see a more signifi.
Technically, cotton tested the upside again today, but failed to hold any follow through as we continue to trade in a sideways trading range. Open interest is still over 230k with risingcert stocks and a lack of demand. Unless the market can break through 65.00, 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. This will depend on the grains and equity markets since fundamentals in cotton are having very little impact.
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