USA : Textile mills take extended holiday time off

Cotton tried to bounce early with the dollar under pressure and rising oil prices overnight, but failed under the heavy pressure from December liquidation. December open interest fell to 36,000 contracts as we now have three days next week before FND.
The urgency to get out of December pushed the cover differences out considerably during the session today. Z'7/ Z'8 widened out almost 150 pts today alone to 1265 pts. Dec/March also got over 500 pts as the market continues to show signs of delayed demand nearby and fearing tighter supplies long term.
Volume was strong with 51,000 futures and 11,000 options, but open interest continues to fall from its record high last week along with growing cert stocks. Technically, the market is breaking several key support lines as we are getting spec selling and scale down trade buying.
Hard to say where the short term bottom is, but we have the new crop pressure and we tend to see a seasonal low for cotton
and grains this time of year. Demand is slow to say the least as most mills are covered through the end of the year and we are hearing of more textile mills taking extended holiday time off this year.
The weak dollar and slowing economy in the U.S. is starting to have an effect on foreign mills this year especially considering that today fixed prices are almost 20% higher for U.S. cotton compared to last year.
Technically, we are testing the upside trend line which began in May of this year and will have to see next week if it will hold or further downside is uncovered. The 9 day moving average crossed the 50-day to the downside for the first time since the market had a 12 cent retracement from the highs set in July’07.
Based on the large spec long position, growing cert stocks and lack of demand recently, as long as the dollar can stabilize and energy and metals continue to weaken, cotton is vulnerable to test the mid 60’s based H’08 and sparking more technical sell signals. The stock market looks like it is stabilizing which should strengthen the dollar and weaken commodities.