The cotton market rather obviously gave back a huge portion of its early-August rally Tuesday. As pointed out yesterday, that seemingly marked a response to a surprisingly large improvement in the cotton condition readings on the Monday afternoon Crop Progress report. Of course, the breakdown also had a major technical component, with traders almost surely actively bailing out of recently established longs as the most-active December futures plunged through short-term trendline and moving average support.

Unfortunately for bullish interests, prices plunged again Wednesday. The drop very likely reflected early-morning comments from the CEO of the Lenzing Group, a major textile manufacturer, in Europe. He indicated that the company believes the large global cotton stockpile will persist for another three years. If so, prospects for rising prices for the white fiber could diminish accordingly. The chart above puts the two-day plunge in context, showing December futures are now priced very near their August lows.

Thus, the market might easily stabilize in this area and eventually resume the recent rally. On the other hand, we certainly canΆt rule out the potential for further short-term losses. Given the seemingly technical nature of the recent surge and subsequent reversal, IΆm inclined to expect prices to stabilize around prior levels, but there is certainly no guarantee that that will be the case.