Even while outside markets shifted back to a negative force yesterday, cotton managed to hold on to a small gain. At least for the short-term, the market seems to have priced-in a large crop and a poor demand outlook just ahead. The USDA reports last week showed a record high world ending stocks figure and this will remain a longer-term negative force. Less than expected rain for West Texas, an easier monetary policy in China and the oversold technical condition of the market are all short-term forces which might provide some support. News that India officials are considering an export cap of 13.5 million bales was also seen as a short-term potential positive force as an export cap could direct buyers to US cotton ahead of the end of the India crop season on September 30th. The market is extremely oversold basis traditional technical indicators with a 16.8 posted as the RSI yesterday for December cotton which is up from 7.82 a few days ago but still an extreme reading. Open interest dipped lower on the rally this week but was up for six sessions in a row last week as the market is seeing speculators press the short-side of cotton on the break. ICE exchange certified deliverable cotton stocks increased to 147,980 bales from 146,424 bales the previous session.
While the USDA Supply/demand news was negative, traders see “less” planted area than the USDA projection due to the surge in soybeans this spring. In addition, the market also saw a strong downside reaction into the bearish reports with December cotton closing lower for 11 sessions in a row before the bounce this week. The longer-term trend may be down but expect a recovery bounce just ahead; especially if the US stock market can get some traction.
COTTON (JUL): Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The close below the 9-day moving average is a negative short-term indicator for trend. The close over the pivot swing is a somewhat positive setup. The next downside target is 77.22. With a reading under 20, the 9-day RSI indicates the market is extremely oversold. The next area of resistance is around 80.23 and 81.51, while 1st support hits today at 78.09 and below there at 77.22.
StockMarketNews Research Team