The entire Board picked today to go through a classic breakdown, but not of the Foggy Mountain variety. Financials, metals, softs, grains, livestock, all took a beating. What lonely bull was there? Big Daddy Dollar, making a comeback. We have been advocating the bear side of cotton based on balance sheet numbers alone, but with such an all-in meltdown, cotton will join the crowd. Even with a pesky storm riding through the Delta mid-week, cotton's balance sheet does not support mid 60s.
The gap-down and reason for the stock market today is unknown to us, but it could be election turmoil, and rising covid. The selloff is so broad that today is not just a few markets reacting to exports or weather, this is a gap-and-go plunge following weeks and months of rising markets everywhere. Here is the much-feared "risk-off" trade. Where this ends will be as difficult to ascertain as where and when the bull started back in spring. Hold tight!
Cotton's history is fascinating and several centuries old, with wars, toppled governments and all sorts of economic turmoil involved. Old traders will appreciate today's quote at left, made on FND of the Oct contract, 1973, when spot nearly traded $1.00.
We remain negative on cotton, but didn't factor in an all-in Foggy Mountain Breakdown to be the catalyst. This could be one wild ride, right into the election. Markets tend to overshoot, and it looks like a lot of them have done just that on the upside. Cotton is only a few cents above "fair value," but given the overshoot, what would an undershoot look like? If cotton is worth 60c to 62c on a long average, a 10% deviation can occur on both sides. That's 67c to 54c, for something of an annual high/low. A harvest low is in front of us, but won't puncture that Mar low.
The seasonal at least has started at the right time, and the 5 Point Sell signal has entered the first of two possible short entries. Mo has turned back down on daily and weekly charts, and the 6600 area has once again proven to be stiff historical resistance. This year's Mar to Sep rally is nearly identical to the rally a year ago from Aug to Jan. Last year's rally on Dec continuous was 1641 points, and since last Mar the Dec has moved up 1675 points. Length of time for this year's rally is 114 days, and if one begins last year's rally on 5 Aug, the time period is 111 days. Chart below is Dec continuous.