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The market may finally be getting overbought after surging to new highs for the year yesterday. This took the weekly chart of the nearby cotton contract to the highest level since March 2008. Leadership has shifted more and more to the nearby contract. On the one hand, this tells us that this is a genuine fundamental bull move is underway in cotton led by old crop tightness and that strong demand may tighten stocks even further before the next US cotton crop is harvested. On the other hand, the concentration of strength in nearby contracts suggests that there will be pauses and corrections in the rally in more deferred contracts, including the May contract. Open interest remains in the same sideways pattern it has seen for the past two weeks although there may be a slight upward bias developing. Funds were strong buyers yesterday as the nearby March contract posted a gain that was more than 2 1/2 times higher than the gain in May cotton. However, the gain in the May contract was also substantial and the July contract was also substantially higher. The first deliveries against the March contract yesterday were 2009 contracts and traders report that they were stopped by strong hands. Stocks registered for delivery against the ICE No. 2 cotton contract rose again yesterday to 517,172 running bales from the previous total of 507,850 running bales.
TODAY’S GUIDANCE: Traders should be careful to avoid any temptation to try to pick a top in cotton. Even doing so in a deferred new crop contract could become a trap if spreads temporarily reverse which would tend to temporarily lift deferred contracts. Still, the market is overbought which means that traders should concentrate on taking profits from the long side and waiting to buy in May or July contracts on a setback. First support is at 77.83 in May cotton. The next significant support is at 75.34 to 75.50. Next resistance is still at 81.09.
Cotton Market Commentary – 2010.02.23
by Dave Hightower on February 23, 2010
Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
The market may finally be getting overbought after surging to new highs for the year yesterday. This took the weekly chart of the nearby cotton contract to the highest level since March 2008. Leadership has shifted more and more to the nearby contract. On the one hand, this tells us that this is a genuine fundamental bull move is underway in cotton led by old crop tightness and that strong demand may tighten stocks even further before the next US cotton crop is harvested. On the other hand, the concentration of strength in nearby contracts suggests that there will be pauses and corrections in the rally in more deferred contracts, including the May contract. Open interest remains in the same sideways pattern it has seen for the past two weeks although there may be a slight upward bias developing. Funds were strong buyers yesterday as the nearby March contract posted a gain that was more than 2 1/2 times higher than the gain in May cotton. However, the gain in the May contract was also substantial and the July contract was also substantially higher. The first deliveries against the March contract yesterday were 2009 contracts and traders report that they were stopped by strong hands. Stocks registered for delivery against the ICE No. 2 cotton contract rose again yesterday to 517,172 running bales from the previous total of 507,850 running bales.
TODAY’S GUIDANCE: Traders should be careful to avoid any temptation to try to pick a top in cotton. Even doing so in a deferred new crop contract could become a trap if spreads temporarily reverse which would tend to temporarily lift deferred contracts. Still, the market is overbought which means that traders should concentrate on taking profits from the long side and waiting to buy in May or July contracts on a setback. First support is at 77.83 in May cotton. The next significant support is at 75.34 to 75.50. Next resistance is still at 81.09.
Tags: Cotton, Softs
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