With only a minor bounce yesterday on a session when outside markets were bullish, a shift to more negative outside forces would seem to leave cotton as vulnerable to more long liquidation selling. The market is still operating under the negative technical influence of the reversal-type action on Tuesday, and the weak recovery bounce yesterday along with the outlook for less threatening weather and improving crops in Texas could spark another round of long liquidation soon. December cotton closed modestly higher on the session yesterday as the early test of Wednesday’s lows failed to attract new selling interest and the market bounced nearly 125 points off of the early lows. After holding support, the market received a boost from fund buying across a wide spectrum of commodity markets and from a surge in the stock market based on a more promising economic outlook. Weekly export sales for cotton came in with net cancellations of 1,500 running bales for the current marketing year and net sales of 51,200 for the next marketing year for an overall net of 49,700. As of July 16, cumulative cotton sales stood at 106.7% of the USDA forecast for 2008/09 (current) marketing year versus a 5 year average of 111.1%. Sales came in below trade expectations, but this news was offset by strength in outside markets. Export shipments were slightly above trade expectations at 244,700 bales. US Texas weather appears good enough to see further improvements in crop conditions. While there was a significant scare with early monsoon rains being slow in India, cotton areas there have received good rains recently. Monsoon rains were 15% above normal for the week ending July 22nd. China’s imports for the first half of the year were just 735,355 tonnes, down 40.7% from last year.
TODAY’S GUIDANCE: Weather seems better than expected for both Texas and India, and weaker outside markets could spark another round of long liquidation selling.