More fireworks for the last trading day of the month as we sent the market higher into the long Labor day weekend. Volume picked up considerably as we traded over 4,000 contracts in the overnight session as cotton was up significantly on the news of over 122,000 decerts.
This along with friendly economic news helped the cotton market test almost limit up levels and break through some key upside resistance targets. This combined with friendly grain prices broke cotton outside the downtrend channel.
Volume was way above the recent average at 41,000 futures and 31,000 options as the market found buy stops and good spec buying into limited upside trade selling.
Business was being done at a very good volume over the last several weeks and has lead to tighter inventories in the Midsouth which also lead to the rally. The decerts were another good sign that demand has been above average with the front month trading at 55/56 cents.
However, we closed V'07 today at 59 and almost reached 60 cents on the highs. Not to mention that most offers will start rolling to Z'07 which puts the market 5 cents higher than where the majority of business was done in the last several weeks.
In the short term, this will not matter much as the market wants to test the highs further and we need to watch the specs closely. In the long term it could force Z'07 back down into the upper 50's in order to find demand, but with fresh positive technicals, expect this move will continue.
Technically, we closed above the 9-day moving average again on another nice gap up breakout which today even tested the 50 day moving average.
We also broke out of the downtrend trade channel which could set us up for further upside. The stock market and grains were also strong overnight and early today as the markets helped add to the gains in cotton.
We will wait for next week to see how the market reacts to the long weekend, but for now, the technical picture looks like buying dips would be the safest way to trade.
