The nearby month in US cotton futures, March, just closed higher this past week despite its Ά3-weeks-upΆ negative timing cycle. March has also closed above all of its key moving averages and the same can be said for the weekly chart.
The one hindrance is the trend line. My technician, Dave, is also of that opinion. Dave said the following after FridayΆs close: “It was a neutral to friendly day for March Cotton and that keeps it pegged against the trend line and overbought.”
There are no hourly, daily or weekly cycles for MondayΆs trade per Dave, but cotton futures are very overbought and the specs have bought A LOT of cotton the past 8 sessions.
The latest CFTC COT reports (legacy type) show significant increases as of Tuesday, December 10 (the day of the last USDA supply/demand report). The ΅futures onlyΆ shows an increase of 9,562 contracts, with ΅futures/optionsΆ up 9,185 by way of nearly an equal number of new longs and short covering.
More of the same occurred Wednesday-Friday, so barring a big change on the upcoming Monday and Tuesday sessions, the next COT report should show at minimum a similar increase if not more.
The last 2.5 weeks of this month will see a major holiday in the US, Christmas, with most countries celebrating New YearΆs Day in some form or fashion. ICE will be closing at 1:00 PM EST on Tuesday, December 24, and all of Wednesday, December 25, and Wednesday, January 1. Volume will be impacted and trade action should slow the rest of this month as a result of the upcoming holidays.
Index funds will be (if they have not done so already) realigning their various positions based on price. Currently, cotton is about 5-7 cents higher than this same week a year ago, so any reduction in number of cotton contracts may be incidental in comparison to other commodities.
The coming week will see financial markets at a lull until after the 2-day Federal Open Market Committee meeting, which takes place Tuesday and Wednesday this week.
Some back-filling by cotton futures is not only likely but needed to resolve its overbought status, while fundamentals either catch up or specs rethink their recent buying actions.
©Sharon C Johnson, Senior Cotton Specialist, KCG Futures, Atlanta, Georgia, USA
