The cotton market was mixed overnight after a disappointing day yesterday. Outside market forces appear to be the key driving factors for the market, and the US Employment report due out this morning is likely to be the major event today. Yesterday the cotton market was under moderate pressure from a sharply higher dollar, but then it sold off sharply after equity markets turned weak. For this morning’s Employment report, traders are looking for non-farm payrolls to show gains of 90,000. The markets are cautious ahead of the employment report, and there seems to be a risk-off attitude that will be hard to shake unless it turns out to be a bullish surprise. Other outside market factors are also a bit disconcerting this morning: Spanish bond yields are up sharply, and the IMF Chief overnight expressed her concern over the state of the global economy. The trade will also be looking at US Export Sales this morning. Sales have been running well ahead of the pace needed to reach the USDA forecast for the 2011/12 marketing year, but last week’s report showed net cancellations of 602,000 bales, which is a huge number. Two weeks prior to that there were net sales of 795,000 bales, the biggest reported week since last November and the second biggest all year. The old crop year ends this month, and it’s not unusual to see business shift to the new marketing year at this point. Reports yesterday that India’s output could fall 20% this year (from current expectations for a 5.6% decline) due to the late monsoon failed to offer much support because there were also reports that it is not too late for the monsoons to come. Even with a 20% decline in Indian output, global ending stocks would still be set to rise this year. US cotton crop conditions have slipped recently, but they are still well-ahead of last year and only slightly below the 10-year average.
This employment data could be a key driver this morning, and any disappointment along those lines could spark a resumption of yesterday’s sell-off. It would probably take a large export sales figure of 300,000 bales or more to have much of a positive effect, and this seems unlikely given the way the global economic mood has been over the past week.

Technical Analysis

COTTON (DEC): The close below the 40-day moving average is an indication the longer-term trend has turned down. Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The market’s close above the 9-day moving average suggests the short-term trend remains positive. The outside day down is somewhat negative. The market’s close below the 1st swing support number suggests a moderately negative setup for today. The next upside objective is 73.49. The next area of resistance is around 71.80 and 73.49, while 1st support hits today at 69.36 and below there at 68.62.

StockMarketNews Research Team