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The cotton market continues to show a reluctance to bounce after moving below the 100-day moving average last week. The market remains dominated by fund liquidation, concern over the soft consumer side of the US economic recovery as well as ideas that cotton can gain acreage in the US this year even if the market trends moderately lower. Last week finished on a weak note in the face of a better than expected 4th Quarter GDP estimate which was up 5.7%. Last week also saw a better than expected Consumer Confidence number, but some analysts were scratching their heads over the improved consumer confidence outlook at a time when other indicators in the housing and jobs sectors have been so weak in recent weeks. Economic reports out today include Personal Income, Construction Spending and the ISM Manufacturing Index. Otherwise this will be a fairly light week for fresh economic data in the US. The Commitments of Traders report for the week ending January 26th showed net selling by funds in cotton. Trend followers (or, hedge funds) were net sellers of 9,902 contracts, which amounts to a moderate reversal of the buying trend that had been seen by these traders since the First Quarter of 2009. This latest round of selling reduces the trend-followers’ net long position to 29,230. Index funds were net sellers of 2,051 contracts which reduces their long position at just 72,828 contracts. This is far short of the 122,555-contract all-time high position held by index funds in February 2008. Stocks registered for delivery against the ICE No. 2 cotton contract rose again today to 476,500 running bales on Friday from the previous total of 468,099 bales.
TODAY’S GUIDANCE: If the trend toward fund selling continues, and it looks like it will, cotton will continue to move lower in coming days and weeks. A major break in the dollar and/or a big recovery rally in equities could help to turn cotton around, but even those positive price developments might not rally the March contract past 72.50. Our next objective on the downside is at 67.28. First support is near the 68.50 area in March cotton with next support above 67.88 and then 67.28. Resistance is at 70.52 to 70.65 and then at 72.00 to 72.43.
