It was an unusual start to MondayΆs session, with both Dec and Mar contracts holding above FriΆs close despite the new contract low and low close that occurred in the previous session. A lack of selling and commercial buying via mills accounted for the early strength with an intra-day high put in place at 2:20 AM EST.
When futures failed to sell off at the start of the business day in the US (8:30-9:30 AM EST), commercial buying increased as did short covering.
Talk of a significant storm sweeping across the southern US with a sizeable drop in temperatures and heavy precipitation accounted for some of strength but not all.
The emergence of a strong taker and rumors of ChinaΆs activity in cotton may also have been behind the surprising rally at the start of a holiday week in the US. Estimated futures volume was 15,611 with options adding another 2,267 contracts. Certificated stocks have risen to 222,807 bales with another 20,272 awaiting review for a possible total of 243,079 bales.
There were another 177 notices for delivery this evening for Tues, Nov 26. Newedge USA remains the primary issuer and stopper. One of NewedgeΆs client has taken 1,234 contracts (123,400 bales) or 61% of the notices.
The latest Commitment of Traders showed another week of long liquidation/new shorts on the part of the specs as of Tues, Nov 19. On the legacy type ΅futures onlyΆ report, net longs declined by 639 contracts to +4,546. The ΅futures and options” showed a drop of 1,768 in net longs to +9,972 contracts. In both instances, the net long position is at its lowest level since Nov 27 when futures only were a -202 and futures/options were +9,509.
Futures achieved a multi-year low on Nov 6, 2012 and Nov 13,2012 with futures/options.
PRICE COMMENTARY: The market break to new lows basis March surprised me on Fri, Nov 22 as a potential seasonal and contract low appeared to already be in place. But for any one of several reasons, new lows and low close did occur in March although the December turned around and performed well by the end of the session. As bad as Friday, November 22, looked, today took on a much differ appearance.
As my technician put it: “March cotton appears to be rejecting the new low from Friday. In any case, Tuesday is a swing day.”
March not only remained up on the day, it closed above its 10 and 20-day moving averages as well as FridayΆs high. Timing-wise, a seasonal low was likely in Oct/Nov and if not for the US government shutdown, I suspect this yearΆs low would have corresponded to the same time as a year ago which occurred in the first week of Nov.
There is concern about the ongoing winter storm crossing the southern US, but weather issues have surfaced during harvest in the past two months when far more cotton was in the field.
Perhaps the storm erases any thoughts of a larger crop than the 13.105 mln bales and in fact could shrink it some along with the damage to quality. There continues to be talk from Asian sources and some here in the US of a major shift in ChinaΆs policy if mills can exert enough pressure for new import quotas as opposed to jumpstarting an auction sooner than a year ago.
With concerns of a crop nearly 2 mln bales smaller in China versus the USDA November estimate and more rain hitting the southern zone of India, the supply side of the balance sheet is looking a bit shaky. When combined with the potential for Chinese imports to exceed the official figure of 11 mln bales, a definite shift may be occurring in the pricing structure of cotton.
A 2-day positive close is needed for confirmation of a turn if not a close above key resistance or a significant turning barometer such as the 50-day moving average. MonΆs performance was impressive and is a very encouraging step towards confirmation of a seasonal low.
This weekΆs holiday may complicate that pronouncement, as will the last two trading days of the month, Wednesday, November 27, and Friday, November 29, and how funds will react. If this coming FridayΆs close is the opposite of last Friday, we should have our answer.
