Taking China out of the equation, the major exporters will see higher availability of cotton some 3.1 Mb as production exceeds consumption for a third consecutive year. In terms of price, Rabo anticipates continued strong US demand, weather risk and spec influence maintain support in July contract. However, we hold a much more bearish view on new crop contracts as improved cotton availability in major exporters weighs on prices.
COT report shows the spec long is creeping back to near the old record. The record net long is 141k, and the report showed net 127. The only other markets showing near record are the SP and crude, both 10% below record long. The WSJ ran a story on the W TX drought today, but contained little data on cotton plantings. Forecast for Lubbock is 1/10 today, 2/10 Sat, and next Tue/Wed. Forecast for the RGV next 10 days, nada.
Weather is teasing all traders, with 3 scanty not enough rains through 10 days. It will be common if those rains diminish, or turn into a planting rain. Demand remains like a rock, but we hear total sales will be sub 300 kb this week. The other piece of the puzzle is technical, and once again that side is turning down after the 3rd try and failure at 8750. We offer some of Dave Toths tech analysis below.
From a long-term perspective however, the past week’s setback is thus far of a scale insufficient to break the major uptrend and is advised to first be approached as another correction ahead of a resumption of the 2-YEAR bull. Admittedly, the resumption of this major uptrend from 15-Feb’s 77.46 high has been of the challenging, “rising-wedge” type in which the market has failed to sustained new highs before deeper corrective setbacks that still hold above the prior larger-degree corrective low.
Dow theorists refer to this pattern as a “rising-wedge” while Elliott geeks call it a 5th-wave “diagonal triangle”; doesn’t matter…same pattern, different terms or languages to describe the same thing. And it brings the critical technical and trading issue of SCALE into sharp focus. The market has obviously provided enough short-term weakness to identify a key high and threaten the bull, but insufficient larger-degree weakness to confirm the major bull’s end. Such a dilemma and challenge is not uncommon however and highlights the importance of 1) acknowledging shorter-term moves and implications versus long-term moves and implications and 2) most importantly, making trading decisions commensurate with one’s personal risk profile. Inherent to this issue is acknowledging that concluding a larger-degree peak/reversal environment from proof of only short-term weakness is a losing proposition over time and may result in ruin and will definitely result in frustration.
As always, please use protective buy and sell stops when trading futures and options.
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