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The market managed to close higher yesterday but the close was 138 points off of the highs of the day and the chart has the appearance of a near-term top. While the USDA data this week was not as bearish as traders had believed, there was also not enough news for the bulls to remain confident in the steady uptrend. The biggest concern for the bulls is the potential for improving yield in the US and the potential for a slow recovery from the world recession. Without a jump in employment or a much stronger economy, spending on cotton-based products may not improve as quickly as consumption of other more essential items such as energy or food. Seed technology is also an issue and with normal weather, traders are bracing for improving yields ahead. December cotton broke-out to the upside of the recent consolidation on a move over the July 21st highs early yesterday but failed to find much in the way of follow-through buying support and inched back down into the recent consolidation. Outside market forces were bullish and export sales were strong but weaker than expected retail sales and a favorable crop weather outlook may have helped spark the long liquidation selling. Net weekly export sales for cotton came in at 1.216 million bales. Of this total, 983,400 bales were a rollover from last year but new sales of 233,300 bales were seen as supportive. As of August 6th, cumulative cotton sales stand at 25.3% of the USDA forecast for the marketing year versus a 5 year average of 21.8%. Sales of 142,000 running bales are needed each week to reach the USDA forecast. Shipments for the week were 191,100 bales as compared with 222,800 bales last week. Scattered thunderstorms look possible in the next ten days in the west Texas growing areas with temperatures in the low to mid 90’s. This looks to be near ideal weather for the crop to see improving conditions ahead.
TODAY’S GUIDANCE: Look for choppy to lower trade ahead as the market monitors the US and India for supply issues and the global economy for demand issues. The technical failure leaves 64.55 as resistance for December cotton with 61.38 and 60.12 as support.
