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360-289-9441(March 26, 2000) COTTON: May cotton moved lower last Monday, through the 18-day moving average, but not yet setting off a change of trend signal. By Wednesday, the handwriting was on the wall: we were in for a retracement, a downtrend; prices have dropped from near 64 cents to under 59 and it could go lower. Stochastics are bearish in the extreme, nearing oversold, and show wide divergence; RSI is at 30.22 in the 9-day formula. 9- and 18-day moving averages have just crossed to the "sell" signal; momentum and direction indicators are bearish in the short run and mixed, for momentum, in the intermediate to long term. Directional indicators, though, stand up for the down direction in all other time frames. An unhappy thought for those who liked this uptrend since mid-December, we are now in retracement and the direction is down.
On the fundamental front: downside gaps "are not a sign of strength" quoted one source. The narrow May/July spread is not conducive to deliveries. This could continue the downside pressure. Soil moisture has improved for planting. "July must gain on December," said one trader, suggesting that the downside price pressure. Bulls said that the market prices have held up well despite drenching rains, drought-breaking rains in west Texas...Traders are hoping that the net spec long position will be reduced next week. (Tuesday). The Cotlook A Index (exports) was unchanged and Bridge News had a report out bearish on export of domestic cotton through the summer being "off." The fact that futures were down by 500 points while the A Index was down only 20 points suggests that demand is still strong.
Martin B. Miller
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