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!
Yesterday’s sharp rally in cotton came in reaction to a sharp drop in the dollar and reports of big increases in both imports and exports by China. The rally may have also involved some short covering ahead of this morning’s USDA supply and demand report. Traders are not looking for any significant changes by the USDA, although there is a possibility of a bump upward in export sales and a drop in ending stocks. Open interest dropped by nearly 1500 contracts yesterday, continuing its 4-day slide. Combined with recent indications of selling by funds on the Commitments of Traders report, this suggests that the inevitable readjustment at the start of the New Year is bringing a correction of last year’s long rally in cotton, and not an infusion of fresh spec capital. The CFTC could add another wrinkle to the picture if it pursues aggressive restrictions on spec positions in specific commodity markets such as the energy markets. Some traders think that this would have a negative effect on the movement of capital into commodities, even in markets such as cotton that are not directly affected. In any case, the added attention to disbursement of capital at the beginning of the year may be working in favor of stocks and against commodities for the time being. This could be an added disadvantage to cotton over the short term due to the length of its rally during 2009. However, all signs still point to a drawdown in stocks in the US and the world as a whole in 2010, and China’s expansion creates the potential for stocks to drop even further than the USDA’s current projections. In addition, there is the need for increased cotton acreage in the US this spring and a sustained break at the start of the year will not help in that department. Stocks registered for delivery against the ICE No. 2 contract dropped slightly yesterday to 420,692 running bales from the previous total of 420,995 running bales.
TODAY’S GUIDANCE: A break below the 73.30 to 73.35 level today would suggest a continuation of last week’s break in cotton. This could take the March contract down into the 71.50 to 72.00 level, or possibly lower. On the other hand, if we hold above those levels and tally today or tomorrow, this could signal that the break is over and that we will push through the January 4th highs over the next 1-2 weeks. First support in the March contract is at 73.30 to 73.35 with the next support at 72.43. First resistance is at 74.50 and then near 76.00.
TODAY’S MARKET IDEAS: The market is likely to follow the input from the USDA reports and the influence of the stock market over the near-term.
