As discussed Tuesday, cotton futures suffered a significant breakdown earlier in the day, which seemed particularly negative from a technical standpoint, because it pushed nearby July futures sharply below the critical support/resistance level associated with its 40-day moving average. On the other hand, it would have been easy to assume the drop was overdone, partly due to the fact that little real news had caused the decline. Indeed, that seemed to be the case again Wednesday.

Cotton futures did rebound significantly in early morning action, which probably reflected ideas that the Tuesday drop was overdone. It would also have been very easy to assume the strength exhibited by the corn and soybean markets would translate into significant gains. And while early U.S. dollar strength was very likely mitigating any upward momentum, since a greenback advance makes U.S. goods more expensive for international buyers, the concurrent equity market surge to record highs suggested domestic apparel demand will remain robust through the balance of the year. The fact that the equity indexes suffered a major reversal later in the day seemingly bodes rather ill for short-term cotton prospects.

Ultimately, cotton futures seem vulnerable to continued weakness, particularly in the absence of fresh bullish news out of China. Recent indications of improved moisture prospects for the main Texas cotton-growing area also seems negative. Bulls can reasonably hope for technical support around the April lows, but that seems a rather weak reed upon which to rely at this juncture.