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The market is in an oversold technical condition so it won’t take much of a bounce in outside markets to see a short-covering rally in cotton. However, traders can wait for technical readings to normalize before selling again as there appears to be more negative economic news ahead before there is a sign of a low for the US economy. The strong dollar is making US cotton more and more expensive on the world market and the global demand trend looks to be down. While the US export sales pace has been a supportive factor recently, we feel this could be a sore point ahead. Look for sales numbers to begin to slow rapidly and don’t rule out some cancellations of current sales on the books. May cotton saw some early buying support yesterday from the bounce in the US stock market but even when the stock market rolled over to the downside; cotton remained higher on the session but closed just 23 higher on the day. Ideas that world demand for cotton-made textiles from China may continue to weaken due to the global recession helped pressure the market on Monday and the bounce yesterday recovered only a small part of the recent collapse. If the recession persists, traders believe that cotton imports from China will slow or they will even cancel sales on the books and this has helped pressure. Deliverable stocks fell to 215,927 bales from 217,900 bales the previous session. The COT report on Friday showed that speculators had shifted from a net long to a net short position in cotton and the selling trend is a short-term bearish force.
TODAY’S GUIDANCE: The focus of attention will be on demand and on the possibility of canceled export sales ahead. The market is oversold and could see a technical bounce for a day or two but the trend looks to remain down. Keep 40.25 and 39.10 as next targets for May cotton with selling resistance at 44.10 and 45.45.
