The S&P has lost 16%, cotton 18%, soy 9%, and hogs 21%. Those 4 markets seem to be the ones most vulnerable to Corona, but the stock market is also the one with the most gravity pull. No one wants to buy anything if they think the stock market has more room to the downside.
Another question to ponder, is the stock market merely in a correction of the 15 month bull, or is this the first leg down in something more serious? Given a normal retrace for the SP, traders will be sensitive to another failure.
Cotton has a similar issue as does the stock market. Is the current move down over, or is this something worse, and will cotton merely correct for a few cents, then head down again? We are long from the 6425 and 6100 levels in May, and will be quite sensitive to see how this market behaves in the mid 60s. One other observation is that not only has cotton lost much ground in absolute terms, but in relevance to soy and corn. The Mar 2021 ratio with corn peaked at 0.176 in Jan, and today is 0.163. The Mar 2021 ratio with soy rose to 0.077 in Jan, and has fallen to 0.070 today. Our market is bleeding out acres.
Has cotton just finished the C leg down of a typical A-B-C correction? Or the 3rd wave down of a broader 5 wave move? Bias is that the low Friday is the C leg low, but if Friday’s low gives way, high 50s here we come. Open interest has been depleted sharply, from 268k to 195k, meaning cotton is clean to make a size move from 60c. Cotton tends to make highs in Spring, and we like the long side.
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