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Will cotton's champagne moment turn flat?

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If the last session felt like a champagne moment for cotton bulls, that is not just because futures soared 2.1%, March basis.

 

It is also because the gain was predictable to devotees of Bollinger, albeit in terms of the chart bands derived by analyst John Bollinger rather than the esteemed brand of bubbly.

 

“Three consecutive days of higher [cotton price] closes and the pinching Bollinger Bands portended a larger move was coming,” said Ron Lee at Georgia-based McCleskey Cotton.

 

“We obviously got that move” on Monday.

 

‘Air would be pretty clean’

 

What else can be drawn from the charts?

 

One observation is that October was “very close to being a doji month”, Mr Lee said - that is, ending the month at a price similar to where it began.

“That would indicate a significant low was reached.”

 

Certainly, that worked the last time we saw a decent doji month, in May, in the March contract, which preceded a 12% gain over June and July.

 

And what would really get bulls excited is a close above the 71.49 cents a pound reached when Hurricane Irma landed.

 

“The market could certainly grow some legs as the air would be pretty clean up there.”

 

‘Big and likely getting bigger’

 

Still, there is good reason for caution over expecting such a price mark to be achieved, with other market forces in play – notably the idea of a large US crop.

 

“Sources in and around Lubbock,” at the centre of Texas cotton-growing country, “indicate the crop out there is big and likely getting bigger,” Mr Lee said.

 

And at Rose Commodity Group, Louis Rose said that US Department of Agriculture data overnight, showing the US cotton harvest at 74% complete, ahead of the average pace and up 10 points week on week, “are not bullish figures”.

 

On-call calls

 

And another factor, which seemed in play in the last session, was down to interest from mills which had bought cotton “on-call”, ie at a price set against futures at a later date.

 

More than 15,600 lots, equivalent to some 1.6m bales of cotton, remained to be price fixed against the December lot as of last week.

 

The last session’s “move higher was likely spurred by the fixation and/or rolling of remaining mill on-call commitments against the soon-to-expire December contract”, Mr Rose said.

 

With first notice day on Friday, beginning the expiry process of the December lot, and Thanksgiving cutting off a day, it may be that the last session was something of a one-off hurrah.

 

Firm month

 

Still, cotton futures are on course to record a rise for a second successive November, in the face of the US harvest, and a big one at that.

 

Indeed, there are many who believe that, as in 2016, this will precede December weakness.

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