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The market may be nervous about the recent 2 1/2 cent advance in the December contract given the shaky economic outlook, particularly the outlook for consumer spending. However, a lower dollar, higher equities and a positive chart pattern helped to boost cotton again yesterday, pushing the December contract through its 100-day moving average. December cotton then ticked through yesterday’s high overnight, but the market quickly retreated due to a lack of support from outside markets. This week’s Crop Progress report showed the overall cotton crop rated at 68% good-to-excellent, unchanged from last week. However, there was a 1% shift from good up to excellent. Squaring stands at 94% versus the 5-year average of 87%, and 58% of the crop is setting bolls versus the 5-year average of 48%. Temperatures are expected to cool in parts of the south today with much of Texas and Louisiana only in the 80s. Areas to the east are expected to remain in the 90s with parts of Georgia in the upper 90s. The hot air mass is expected to become more predominant again tomorrow, although south central Texas and parts of the Texas Panhandle may still be in the 80s. Scattered showers and a few localized thunderstorms are expected today from central and East Texas on through the Delta and into Mississippi and Alabama, with more general coverage possible in the Delta. More showers are expected over the course of the week. New Home Sales were up substantially in June after posting an unprecedented drop in May. While the June total was higher than expected, it was still the second lowest monthly total in data going back to 1963, so this still does not bode well for job creation and consumer demand. Weather in India and Pakistan has improved since the weekend and into the start of this week with good rains in western growing areas in India and scattered thunderstorms in Pakistan. More showers are expected. Stocks registered for delivery against the ICE contract fell sharply again yesterday despite their already low levels. Stocks fell to 53,403 bales from the previous total of 55,389 bales.
TODAY’S GUIDANCE: While the cotton market may have further upside potential, there is little reason to expect a sharp uncorrected rally of the sort that we have seen this month in wheat. That is because cotton is still relatively close to its recent highs, and trend-following funds have been long in cotton this year, instead of short as has been the case in wheat. The great question in the cotton market is whether the growing US new crop supply can be counterbalanced by continued growth in demand from Asia. Over the short term, the December contract may fluctuate near the 100-day moving average under the influence of dollar direction. We continue to look for a move to near 77.48 over the short term. First support in the December contract is at 75.34 to 75.38 with next support at 74.65 to 74.71. Next resistance is at 77.48.
Cotton Market Commentary – 2010.07.27
by Terry Roggensack on July 27, 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 be nervous about the recent 2 1/2 cent advance in the December contract given the shaky economic outlook, particularly the outlook for consumer spending. However, a lower dollar, higher equities and a positive chart pattern helped to boost cotton again yesterday, pushing the December contract through its 100-day moving average. December cotton then ticked through yesterday’s high overnight, but the market quickly retreated due to a lack of support from outside markets. This week’s Crop Progress report showed the overall cotton crop rated at 68% good-to-excellent, unchanged from last week. However, there was a 1% shift from good up to excellent. Squaring stands at 94% versus the 5-year average of 87%, and 58% of the crop is setting bolls versus the 5-year average of 48%. Temperatures are expected to cool in parts of the south today with much of Texas and Louisiana only in the 80s. Areas to the east are expected to remain in the 90s with parts of Georgia in the upper 90s. The hot air mass is expected to become more predominant again tomorrow, although south central Texas and parts of the Texas Panhandle may still be in the 80s. Scattered showers and a few localized thunderstorms are expected today from central and East Texas on through the Delta and into Mississippi and Alabama, with more general coverage possible in the Delta. More showers are expected over the course of the week. New Home Sales were up substantially in June after posting an unprecedented drop in May. While the June total was higher than expected, it was still the second lowest monthly total in data going back to 1963, so this still does not bode well for job creation and consumer demand. Weather in India and Pakistan has improved since the weekend and into the start of this week with good rains in western growing areas in India and scattered thunderstorms in Pakistan. More showers are expected. Stocks registered for delivery against the ICE contract fell sharply again yesterday despite their already low levels. Stocks fell to 53,403 bales from the previous total of 55,389 bales.
TODAY’S GUIDANCE: While the cotton market may have further upside potential, there is little reason to expect a sharp uncorrected rally of the sort that we have seen this month in wheat. That is because cotton is still relatively close to its recent highs, and trend-following funds have been long in cotton this year, instead of short as has been the case in wheat. The great question in the cotton market is whether the growing US new crop supply can be counterbalanced by continued growth in demand from Asia. Over the short term, the December contract may fluctuate near the 100-day moving average under the influence of dollar direction. We continue to look for a move to near 77.48 over the short term. First support in the December contract is at 75.34 to 75.38 with next support at 74.65 to 74.71. Next resistance is at 77.48.
Tags: Cotton, Softs
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