TodayΆs lower close is disturbing on technical grounds alone, with a possible downside breakout of what technicians call a “bear flag” formation. More on that later. WhatΆs particularly worriesome is to see cotton this weak in the face of what would normally be price-friendly news – that cotton prices in India hit a record high on declining yield prospects, quality worries and delayed harvest tied to excessive rains in key areas while Indian and Chinese cotton mill demand is surprisingly brisk.

But now take a look at the December chart after todayΆs close. That circled area is a downside breakout of the “flag” at the bottom of an inverted “flagpole” that runs from recent highs above 93 to current lows around 83. Chart technicians will tell you that if it truly is a “bear flag”, then todayΆs action could signal the start of a further decline the length of the flagpole, or about 10 cents per pound – to as low as 73 before this bear is done growling.

It is very hard for me to see that much downside risk unless China is indeed getting ready to start unleashing reserve stocks and planning to “hedge” some in advance. The U.S. crop size, if anything, was overestimated in the August WASDE according to all anecdotal reports coming in. But I have always had a healthy respect for technicals that donΆt square at all with the “fundamentals” as I perceive them. More often than not, they charts have been my early warning system that my fundamental outlook is flawed and I just donΆt know why — yet.