The Hightower Report

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A new high for the move on Friday combined with the lower close could be a sign of a near-term top, as the market attempts to correct the overbought condition. Traders remain concerned with the slow pace of exports over the past few weeks, as old crop has rallied up from the mid-May highs during a period of continued cancellations of old crop contracts. More talk that there will be a major loss of harvested acres in Texas due to abandonment helped to support the market earlier last week. More than half of the state of Texas is experiencing “exceptional drought” according to the National Drought Monitor. News that a large commercial firm decertified more than 142,000 bales helped to support the old crop July futures. Certified cotton stocks deliverable against the exchange collapsed to just 52,035 bales as of June 1st, down from 194,715 the previous day. December cotton pushed to its highest level since April 7th on the session Friday, but a weaker tone for the stock market and profit-taking in cotton helped force two-sided trade, as there was talk of a short term overbought condition of the market. The reversal and lower close might attract some short term selling. Weekly export sales for cotton showed net cancellations of 46,000 running bales for the current marketing year and net cancellations of 27,300 for the next marketing year for a total net loss in export sales of 73,300 bales for the week. Cumulative cotton sales stand at 98.5% of the USDA forecast for 2010/11 (current) marketing year versus a 5 year average of 100.5%. Sales of 24,000 running bales are needed each week to reach the USDA forecast. The Commitments of Traders reports as of May 31st showed non-commercial traders were net long 43,162 contracts, an increase of 4,278 contracts for the week. The buying trend is seen as a short term positive force. Commodity index traders held a net long position of 48,160 contracts, down 1,007 contracts for the week.

TODAY’S GUIDANCE: The extent of any pullback should be minimal, as the forecast for Lubbock Texas shows no rain chances for the next week, and temperatures climbing to 101 Tuesday, 102 Wednesday, 100 Thursday and 100 Friday. The market is overbought. It could see a correction, but it should be minimal. China has a holiday today.

TODAY’S MARKET IDEAS: At this point, we cannot rule out a correction to 130.55 for December cotton  with 151.26 as next upside objective.

Below is a sample of The Hightower Report’s 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!

Cotton futures in China rallied almost 1% overnight. The market should not see much resistance from outside markets this morning, and a weak dollar could provide some light support. The 6-10 and 8-14 day forecast models show a hot and dry trend for the West Texas region, and this is also supportive to prices. Traders remain very uncertain over the world production outlook for the new crop, with increased output a strong possibility for India and Pakistan and maybe even China. Cotton prices in India hit a record high in late March, and this may have sparked a sharp rise in planted acreage, up as much as 15% from last year. India is the world’s second largest producer. It has capped exports at 5.5 million bales this year, but if the new crop season shows signs of record-type production, India could be a tough competitor in the exports market for the coming season. July cotton closed moderately higher on the session yesterday, while December cotton closed sharply higher on the day with the contract up as much as 11.47 from Tuesday’s lows. The shift to a hot and dry weather pattern for West Texas has raised concerns over early growing conditions. On top of the Texas issues, traders see lost acres along the Mississippi as a threat to production this year and drought conditions are also on the rise in Georgia. Certified cotton stocks deliverable against the exchange totaled 183,533 bales as of May 24th, up from 181,056 bales the previous session.

TODAY’S GUIDANCE: The new crop season is off to a poor start in the US, while other countries appear to be in a position to make up for some of the losses. However, the focus might remain on the US for a while, and the weather outlook is still threatening. There is a slight chance for some thunderstorms in Lubbock on May 31st, but this looks to be the only chance in the next ten days, and temperatures are expected to hit 101 Friday and 105 Saturday. Look for support for December cotton near 129.22 with resistance at 132.86. A close over resistance would leave 144.66 as the next target.

Below is a sample of The Hightower Report’s 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 cotton market is finding support from fears of depleting deliverable stocks, and this is helping to drive shorts out of the market. The market saw a low-volume rally yesterday, and this move against the general bearish tone for commodities has caught some “commodity bears” off guard and could support a continued bounce over the near term. December followed July reluctantly yesterday, as Monday afternoon’s Crop Progress report had indicated that the plantings pace picked up somewhat last week. Dry conditions are expected to persist in west Texas for the next several days, but east Texas could get a significant shower, and some traders are concerned that rains could shift to the west and allow for some improvement in the crop. However, the chances of this happening appear low for now, and if Lubbock stays dry into the weekend, drought fears could gain traction. Georgia’s conditions are also too dry, while the delta is too wet. July cotton led the market higher yesterday with more talk of tightening exchange stocks, and this helped drive shorts out of the market. A continued decline in open interest and volatility for old crop has sparked bigger price swings on less volume. China cotton futures closed 0.2% higher overnight. ICE certified deliverable stocks increased to 179,090 bales, up from 166,354 bales the previous session but still down from 284,666 bales earlier last week. Positive textile export data from China last week have helped support a better demand tone for the market.

TODAY’S GUIDANCE: The market seems to be in a position to see at least a temporary recovery bounce, as commercial demand for certified stocks could spark short-covering from speculators. July cotton has support at 152.05 and 149.48 with 163.74 as first key resistance.

Below is a sample of The Hightower Report’s 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 bounce in the US dollar plus news of some unexpected rains for eastern Texas over the weekend may have helped to pressure the market overnight, led by new crop December cotton. A positive reaction to the Bin Laden news for equity markets might help provide some underlying support from outside market forces if the US dollar move does not see much follow-through to the upside. July cotton closed up the 600 point limit Friday to recover part of the major losses for the week. The market managed to recover 1152 points off of Thursday’s lows, but even with the strong bounce, July closed 949 lower for the week. The strong stock market, higher grain prices and a continued break in the US dollar lent support. December cotton closed sharply higher on the session, and the two-day recovery left the market down just 121 points for the week. ICE certified deliverable cotton stocks increased to 217,160 bales from 206,112 bales the previous session. Traders appear a bit confused over the high open interest for the May contract, which is in the delivery period, as there have been only 167 deliveries so far. Weather is still a potential positive force. There will be significant supply concerns even if the weather is normal, but weather has not been normal so far, with a severe drought developing in Texas and too much spring rain creating an obstacle to planting in other areas in the south. Traders will monitor the progress reports this afternoon. The Commitments of Traders reports as of April 26th showed non-commercial traders were net long 32,992 contracts, a decrease of 680 for the week. Non-commercial and nonreportable traders combined held a net long position of 39,958 contracts, down just 484 contracts for the week. Commodity index traders held a net long position of 50,160 contracts. Traders may have expected more long liquidation selling from the net long position of the speculator.

TODAY’S GUIDANCE: Talk that better buying interest from funds early this week in contrast to the long liquidation selling from last week might lend support to cotton. Strength in the dollar might be a short-term negative, but equity market strength is an offset.

TODAY’S MARKET IDEAS: July cotton reached the downside objective of its head and shoulders top formation last week at 147.88. The supportive action late last week may be a sign of a short-term low. July cotton support comes in at 152.65 with 166.45 as 1st key resistance and then 172.65. December support is 126.57 with 132.66 and 135.49 as next resistance.

Below is a sample of The Hightower Report’s 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 acted like a near-term low had been put in place early Monday with its spike down and than higher close, but selling emerged overnight to drive prices to their lowest level since February 25th. Futures in China were down 0.5% overnight, and this may have added to the negative tone, but there has not appeared to be one factor or news item driving the market down. Perhaps we are seeing a continuation of the recent long liquidation trend and there is a lack of new buying interest from commercial traders. The COT report showed large and small speculators held a net long position of 46,340 contracts as of April 12th. With a short-term downtrend, long liquidation selling could get active if support is violated. July cotton fell sharply early in the session yesterday, only to close slightly higher on the day and up 500 points from the lows. The recovery was impressive as the market initially reacted down to the sharp losses in China, news of tightening measures there over the weekend and the S&P downgrade of the US. The market followed other agricultural markets lower early, but a recovery in grains and other commodities despite bearish outside market forces lent support to cotton. The weekly Crop Progress report, released late yesterday, showed that 9% of the US cotton crop has been planted compared to 7% last week and 10% a year ago. The 10 year average for this time of year is 11%. Texas is 12% planted, compared a 10-year average of 16%. The key growing areas in Texas may see some scattered rains later this week, but conditions remain too dry for planting in non-irrigated areas.

TODAY’S GUIDANCE: Open interest is on a slight decline and speculators still hold a hefty net long position, so the path of least resistance is still down. July cotton reached its initial downside objective of 173.20 before the bounce late yesterday, but it took out yesterday’s lows in the overnight session. This leaves 164.55 as next objective and then 147.88 as a longer-term downside target off of the head and shoulders top. Close-in resistance comes in at 176.95 and 178.35. December support is at 125.10.

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After a two-day holiday, cotton futures in China closed slightly lower overnight. However, the declining US dollar, record high gold values, and inflationary fears helped to support July and December ICE cotton futures to higher trade overnight. Yesterday, the market bounced off of the 50-day moving average and off the neckline of a head & shoulders top formation for an impressive recovery from the lows. Ideas that the USDA may be forced to increase the exports and tighten ending stocks in its report on Friday helped to provide some support. The market was under heavy selling pressure into the mid-seesion yesterday day due to talk of slower demand from China after the news of yet another interest rate hike there. However, a firm tone for the US stock market and a move to new all-time highs for gold helped to provide underlying support, and short-covering emerged to help support. December cotton closed sharply higher on the session and managed a move to a new contract high. India’s Farm Minister indicated overnight that his country is considering allowing further exports on top of the 5.5 million bales already approved for the current marketing year, which began on October 1st. The USDA attache in India believes their 2011/12 crop could be a record high 27.2 million bales, but consumption is also expected to push up to 22.6 million bales, and with a record low stocks/usage ratio, exports are likely to be set at around 5.1 million bales next year. The USDA attache in China believes that production there could jump 17% this year to 7.5 million tonnes, but with higher consumption expected (11 million tonnes), China’s imports are pegged at 3.6 million tonnes, up 6% from this season. ICE certified deliverable exchange stocks moved up to 207,747 bales from 205,932 bales the previous day.

TODAY’S GUIDANCE: The International Cotton Advisory Committee indicated this week that world cotton ending stocks for the 2011/12 season will reach 47 million bales, up from 38 million this year. Bullish outside market forces may provide some support today, and potential tightness in India and China for the coming year suggests the importance of a large US crop for world supplies. Uncertain weather for now and a “buy commodities” mentality from investors may keep the short-term trend up. December cotton close-in support moves up to 135.05, with 144.45 as next upside target. July cotton resistance is at 196.66. A close above this level would be considered bullish and would suggest another leg higher to 223.27. Today appears to be critical for old crop cotton.

Below is a sample of The Hightower Report’s 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!

A general idea that the crisis in Japan has reached a peak and that its impact on the world economy will not be as bad as feared helped to support commodity markets overnight, and cotton was no exception. China futures were down 0.6% overnight, but traders apparently saw the recent break as too far, too fast, as US market saw a bounce overnight. May cotton closed down the 7 cent limit for the second session in a row yesterday, although it was able to trade above that level for several hours during the day. Cotton was among the many commodity markets that came under broad-based pressure from the Japanese nuclear problems after last week’s earthquake. Extensive weakness in global equity markets and the general market consensus that China will continue their tightening measures added to the recent negative tone. With yesterday’s decline, cotton prices reached their lowest levels since February 28th. The May contract had fallen as much as 14% in just 8 trading sessions before it recovering overnight and trading sharply higher on the session. China’s planted area for the coming season is expected to increase by 5.4% according to the ministry of Agriculture. Ideas that the cost of the Japanese clean-up efforts could slow the global economy helped pressure the market in recent days. ICE certified deliverable exchange stocks totaled 208,282 bales, up from 204,512 bales the previous session.

TODAY’S GUIDANCE: The market could see a strong recovery off of the recent 8-session decline from the highs but it still looks as though a significant top could be in place.

TODAY’S MARKET IDEAS: May cotton resistance comes in at 200.64 and 204.28 with 184.23 as next support level. December cotton resistance comes in at 124.38 with 115.55 and 109.30 as downside targets.