USA : Trade selling sends cotton market lower

After a strong close yesterday, the cotton market followed higher overnight running into the same level of resistance where it has stalled out ever since the correction started last Friday. We can see on the chart that this top has become very strong and will take a friendly report tomorrow to break through this level.
Trade selling sent the market lower after the open and pushed it down to the low of the day at 60.80 until the market worked its way back up to 61.60 closing near the highs. The locals had got caught short on the close as some fund buying came in based on a friendlier technical picture.
Volume was a bit above average with 20,000 futures and 13,000 options as the market had it strongest close in over 4 weeks. The spec long position was less than expected as it actually fell last week to 21.9% from the 22.2% the week before. There was a bullish article released yesterday sighting the cheap price of cotton compared to wheat, corn and soybeans.
The supply and demand report tomorrow is expected to show higher world ending stocks after possible increases in production for China and India. The U.S. ending stocks are not expected to change significantly and will have to see if the change is enough to break us out of the current trading range between 60/62 cents based Z'07.
Technically, RSI is above 50% and we continue to trade sideways with the market closing today near the top of the range. The 9- day moving average is closing in as the market is trading in a narrow sideways range. Obviously new crop grains remain strong with wheat closing up almost the limit again today, and please note that we have added the nearby grain contracts to our price chart below.
The stock market also showed a good bounce today up over 1%. There are still several weeks remaining for the Northern Hem crop which will be very critical, but tomorrow’s USDA report will be very important to influence the short term direction.