We continue to trade in a narrow intraday range on light volume. Cotton prices opened higher and tested the 70 cent level early, but failed and after weak grain prices combined with a strong dollar, cotton fell all the way down to 68 cents before finding support.
Volume was slightly above average with 12,000 futures and 6,000 options, but the trend remains negative as the technicals started turning south in cotton and grains.
The stock markets in the U.S. took a 3% beating today after more negative news came out in retail and employment as the recession fears increase. There are still storms hanging out in the Atlantic, but most are on course to not cause much damage and we are not getting any extremely negative news out of the major growing areas.
The U.S. dollar hit a new 2008 high against the Euro and this is the main driver in weak commodity prices, but if the equity markets continue to fail, we may see new money pouring back into the oversold commodity complex.
Technicals are starting to turn negative and in a few more days with sideways to lower movement, we could cross downward on the MACD. We have been testing the upside steadily for the last 2 weeks, but have been unable to break the heavy resistance above 72 cents since we broke lower starting back on August 4th.
Considering the low open interest in cotton and the lack of demand, cotton feels like we may continue in a sideways trading range and may test the downside down the road at 66.79. This will depend on outside markets, but the short term upside looks limited and we may see a correction in cotton if we cannot break through 72.00 cents.
