This market is unencumbered by such things as world fundamentals and poor demand. It entered the “twilight zone” in mid July, and can romp and stomp until cotton begins showing up in mid fall. Specs and funds command the tiller for now, and cert stocks won’t show up for 2 months. Cotton is having its same ride as did grain markets in the transition from old crop to new crop, as bull spreads reached records in some markets. The rationing of cotton demand is now taking place much more so in bull spreads than outright price or basis. No matter what one thinks of crop size or exports, this market is in full battle to cause demand to ration a carryout of 2.8 Mb. With this rationing taking place so early in the market year, one can count on it being very effective.
Adding gasoline to the fire, a tropical storm is forecast to move into the Southeast, dumping more water on states that have been complaining about too much rain and too low temps. However, previous years with similar conditions indicate yield only suffers with acute flooding, not just heavy rain.
We remain long term negative, but have to respect these fireworks which are rather rare in Aug. Usually it’s a hurricane that gets cotton excited in Aug, but this year its plain old demand rationing. The higher cotton goes now in price and spreads, the worse things will be on the back side of this year. The inverts currently in the market will not be around in mid Oct, but for now the spreads can cut loose on a long leash. Particularly tempting is the Mar/July spread now at +450. This same year spread is about 800 points above carry. Nuts.
Our friend Craig Coatney has been pointing to the 9600 area for weeks as a nice target area, and its best to listen to this wise man of Chicago. Other than Coatney’s work, the Dec has an old major top at 9600 in Feb 12 on the Dec. The major .618 retrace from contract high to low is 9346. If this move up matches the high/low of the consolidation period, the target is 9734. The spot chart has equaled the March high at 9393. Regards Fib counts, today is a 21 count from the low of 7/18. Monday is a 34 count from the low of 7/01. Tuesday is a 55 count from the low of 6/03. See Craig’s comments and chart below:
From the 8920 high (June 14) to 8172 low (June 3):
200% = 9668
161.8% = 9382
150% = 9294
138.2% = 9206
From the 8956 high (March 15) to 8305 low (June 25):
200% = 9607
161.8% = 9358
150% = 9282
138.2% = 9205
And then my original objective was 9657. So a confluence of levels which can offer some sort of surge objectives and could allow the market to pause before heading higher…
138.2% objectives = 9205-06
150% objectives = 9282-94
161.8% objectives = 9358-82
200% objectives = 9607-68