COT report shows cotton has climbed to roughly the 75% decile area, with specs and funds still adding longs as of Tue last week. Also of interest is the index funds, rising from net long 50k to 80k, and the swaps category rising from net long 42k to about 56k. The other side is taken completely and by whole by the merchant/commercial acct. No doubt a few of the spec and fund longs have peeled off since the decline began, but volume has been normal. Open interest has begun to liquidate, and the roll is on.
Other markets with much influence on cotton have also begun a correction into Dec notice. Corn, meal, soyoil, KC and Chicago wheat, coffee, cocoa and copper have all hit highs are are peeling away the topwaters from the long side. One could probably put the stock market in that group, but that animal is moving on a different set of fundamentals and forces.
Weather has finally turned perfect, as its been one wet, stormy harvest from mid Sep to late Oct. No doubt Mother Nature has taken a bite out of both quantity and quality, and we will now depend on weekly class reports to assess what kind of crop we have.
We didn't think cotton would get past the 6600 area on the way up, and now find ourselves looking at 66 as support. It appears that cotton will perform much as it has during most other periods before Dec notice, by expanding carry and chopping lower. Where it ends up on Nov 20 is a tough call, but our humble guess is that it will be lower than it is today. On Nov 10 and 13 we get 2 events that will help to define that price, with a USDA report and options expiry. Consensus opinion on crop size loss begins at 1.0 Mb, but our analysis over the last couple weeks indicates the market was pricing in something much larger. Expect volatility to increase into notice. Try to hang on to shorts, or add on quick rallies.
From Dave Toth, tech analyst at RJO. Threats to the 7 month bull market are indeed compelling. An arguably complete 5 wave Elliott sequence up from the 5018 low in which the rally from the 6 May low spanned a distance exactly 62% longer of the first wave. The market's rejection of the 7196 high, that also includes the 7242, 50% retrace of the move from 9650 to 4835. Also, there is historically frothy sentiment (96%) not seen since those of the May 2018 peak.