Is It Safe?
After a steep price plunge of 12c to 15c in just 3.5 weeks, some traders are wondering if they can come out from under the bed. This was one of those “all in” days when the entire board went up, and cotton meekly followed the rest. There was nothing in particular, except an Informa acreage figure that was in line with expectations at 14.115 M. Our figure is 14.25 M, with a 1% variance for now.
To mundane issues, the only slightly dry districts in TX are 6 and 10S, and these are getting, and will get rain in the near term. As for the new monsoon states east of the Sabine, today is day 3 of what looks to be a 7 day drought. Much planting will go forward late this week. The only crop that looks affected by the rains is corn, but the others should have ample time to get into a very nice soil moisture profile.
We continue to believe it is time to step off the short side, and rest a bit. Its not that the mid 60s is “too low,” it is that there is not enough known of crop size and exports to press the issue following a $60/b to $75/b drop in price. As the preference lines up at the halfway point, cotton, corn and rice remain roughly tied for 1st place. Followed by sorghum, wheat and soy. If one adds in seed subsidies and an equity, cotton remains top dog, among some real mongrels. Where to sell a bounce? Leave that to the tech boys.
From Dave Toth, tech analyst at RJO. On a long term basis we have a suspected 1st wave low at 7630 that theoretically, this market should not cross above per any broader 5 wave Elliott sequence down from 9 Apr 7957 high. Admittedly, this level as even a long term risk parameter is impractical. But we don’t see any level between 7152 and 7631 that serves as a tighter but yet objective risk parameter to a bearish policy. What we suspect will unfold however is an interim 4th wave correction that’s part of a slowdown process before another round of new lows to complete the sequence or an initial counter trend rally and subsequent retest of the low before a reversal higher. It would be either that larger degree 4th wave correction or that initial 1st wave counter trend to which we’ll be able to eventually trail our longer term risk parameter to a still advised bearish policy for longer term players. This game will become clearer after some base/correction/reversal threat behavior somewhere along the line.
As always, please use protective buy and sell stops when trading futures and options.
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