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Some Stability Overnight in Cotton


While the market appears poised technically to see liquidation selling due to the holiday-type trade, keep in mind that speculators were holding a net short position in Friday’s COT report. As a result, selling may dry up quickly on any further negative outside market weakness. March cocoa closed sharply lower on the session yesterday as the market followed weakness in the stock market, energy markets and metal markets lower.


The market closed sharply lower on the session yesterday and the selling drove the market down to the lowest level since November 15th. Weakness in the stock market and a collapse in energy prices suggest traders are fearful that virus issues will continue to expand and slow the travel and entertainment demand. Talk that good weather helped to improve the 2022 Brazil production outlook helped to pressure.


March cotton broke severely yesterday, giving back all its gains from last week and falling below the December 6-15 trading range. The stock market sold off sharply which is viewed as negative to cotton consumption. The recent sharp increase in Covid cases is sparking concerns about the economy and scaring the markets. Oil was down sharply as well, which is also viewed as negative to cotton because it makes made-made fibers more economical.


It may take a strong recovery in energy prices to find some footing and slow the speculative long liquidation selling. The market seemed to have a perfect storm of bearish fundamental and technical news yesterday, and the market looks vulnerable to further selling pressure.

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