Cheap Duds?
Today’s Spotlight Market
Cotton futures continue their slide due to favorable growing conditions and the July roll ahead of first notice day. ICE inventories of Cotton have risen to 439,198 from 436,979, indicating weak delivery demand. Increased plantings and soft demand strongly suggest that stockpiles of Cotton thread are slated to increase this year. Technically, the December futures have fallen by over 20%, signifying a technical bear market. This could trigger further technical liquidation.
Fundamentals
Drought plagued regions in Texas, near the Lubbock area, have seen ample rainfall over the past two weeks, easing concerns over possible crop damage. Analysts predict that US production may increase by 16% due to increased plantings and improved growing conditions. China has been stockpiling Cotton, but actual textile demand has been extremely weak. This leads many, including the USDA, to believe that global inventories may reach record levels. Speaking of the USDA, the recent liquidation can also be attributed to traders being a bit concerned that the government agency could revise its forecast upward. The recent quarterly GDP figures for the US showed a contraction of 2.9%, a much larger contraction than forecast. A slowing economy could result in lower demand for clothing.
Technical Notes?? -? View Today’s Chart
Turning to the chart, we see the December Cotton contract breaking out on the downside and reaching technical bear market conditions. The contract also broke support near the 76.50 area, which may further liquidation. The RSI indicator has fallen into oversold territory, which could be seen as supportive in the near-term.
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