The Monday afternoon Crop Progress report probably stated the cotton planting pace somewhat ahead of industry expectations, but the limited size of early Tuesday morning losses suggests traders were not at all shocked by the result. Still, bullish hopes for crop problems seem to be diminishing to some extent, especially with some weather forecasts suggesting west Texas cotton growing areas will be blessed with significant rainfall in the near future.
Wire service reports also cited Monday news out of China for a portion of the Tuesday ICE decline, since the report in question stated April Chinese cotton imports about 18% below the comparable year-ago figure. On the other hand, similar statements came out last week, which suggests this item was not a particularly important consideration in the market today.
JULY COTTON FUTURES
Why, then, did cotton futures decline so sharply Tuesday? The chart above probably makes the reason for the drop rather obvious. It shows the nearby July future had recently proven unable to overcome chart resistance associated with its 40-day moving average (blue). Conversely, it had been supported by its 20-day MA (olive). Thus, when it became clear that that support had been decisively penetrated, bulls apparently bailed out with both hands. The July futures rather clearly enjoys support at moderately lower levels, particularly around its February and April lows, but bulls certainly cannot rely upon the prospect of another bounce from that area (between 82 and 83 cents/pound).