We've been wrong on cotton, and have been dispossessed of spec shorts. Better to take a small hit than hold and hurt. Reasons for the breakout are poor reports out of the Llano Estacado, higher grain prices, and enthusiasm for vaccines soon vanquishing bad ol' Corona. Time to wave the white flag and surrender. At least for the moment.
Weather issues in SA have continued to support Chicago markets, and this is where cotton is getting a good share of its buying power. Another large support is from the $, as the once mighty Buck has lost 2% in value in 3 weeks. It did a little head-fake today, falling to what would have been the lowest close in 2.5 years, but then bouncing back to close at a 5 day high. The jury is still out on this market, as it has been testing major support for 4 months, but has refused to break it, or change direction.
COT report indicated a slight decrease in spec longs, and the net is around the 60% decile. Notices at 116 appear negative at first glance. The Big A delivered to 4 of a kind.
The other puzzling aspect of price and market direction is the July/Dec spread jumping to a +4c invert. Just a week ago we thought it was much too fat at +3c, but here it is, fatter and richer. A 7 Mb carryout ain't what it used to be. Or, the carryout is not 7 Mb. The market is making the statement that carryout is below 6 Mb, perhaps around 5.75 Mb. One can get there by a combination of higher exports and a lower crop. A month ago Mar was trading 71c/73c with a carryout +7 Mb, and today it is a 74c item, and is firmly saying the carryout is not the man the USDA says.
Mar, May, July and Red Dec have broken out to the upside, while spot Dec, spot continuous, and Dec continuous have not. Volume and open interest reside with the Mar. The Dec left a nice evening star today, and volume was big enough at +3k to consider this is still an active, efficient contract. If Dec can clear the 7260/7300 resistance, then all contracts and charts have broken through to the upside. There is therefore still a little confusion as to whether or not cotton can get above the tough resistance at 7300. Seasonal is + to 1/02, but there is divergence setting up between the current high, and that of 10/28.