Spec Short Covering Seems to Drive Market Higher as Fund Rolling Near End

November 14, 2023 4:52 pm
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Tuesday, November 14, 2023

Daily Cotton Market Recap, Commentary and Analysis Summary

This publication constitutes copyrighted material and contains proprietary information and information derived from proprietary analytical procedures and tools.  It is intended exclusively as information for and use by the subscribing party.  Reproduction or redistribution of material contained herein in any manner, either in part or in whole, without prior written consent from Rose Commodity Group, LLC is expressly prohibited.

Market Recap:

The ICE Mar contract gave up 3 points yesterday, settling at 79.47.  May gained 13 at 80.41. the net effect leaving the Mar – May spread weakened at (94).  Mar open interest (OI) expanded to approximately 96K while total OI contracted to around 215K.

Mar is notably higher this morning.

Fundamental & Macroeconomic News:

The Mar contract is inspired today and is flirting with limit up (300 points).  A settlement today above 80.00 would move the daily limit back to 400 points and establish 80.00 as a relatively strong level of initial technical support.

Overall, we think that specs are now likely net short and the market’s move above 80.00 likely triggered stop orders and the market’s rapid rise overnight and today.  Still we have been expecting higher prices on the market’s oversold condition amid prices that are much too low for the tight domestic balance sheet.  We continue to think that prices will rise into the spring in order to “purchase” cotton acreage.

Domestically, USDA estimated harvest progress for the week ending Oct 12 advanced 10 percentage points to 67% complete; USDA finally agree that the Mid-south harvest is effectively finished.  The rolling 5-year average for progress stands at 63%.

In other news, ICE certificated stocks continue to slowly accrue and now stand at almost 86K bales.  As long as China and Vietnam continue to buy US high grades accrual seems likely to remain slow, which is supportive for futures.

For the week ending Nov 7, the trade cut its aggregate net long position to approximately 4.1M bales while large specs slashed their net long to around 650K bales.  As stated above, we think specs ultimately went net short on the market.

Internationally, China has been on a strong buying spree of US commodities over recent weeks, and more may be in the offing as President Xi visits San Franciso; such purchases often occur when Chinese officials visit the US as a sign of good will.  Elsewhere, Australia’s new crop production remains hindered by drought while Brazil is expected to see a notable increase in production, mostly due to its second crop sowing behind soybeans.

Medium- to Long-term Expectation:

The market has fresh news to trade upon and, while not as bullish as expected, it is supportive, at worst, considering the level at which the market is currently trading.

The Mar contract should experience resistance near 82.00 – 83.00 and support near 78.00 – 79.00 over the near- to medium-term.

Our current targets for producer sales have lowered substantially. We advise producers who have not yet priced cotton to consider pricing a percentage of their cotton at or above the 80-cent level, and we will consider futures at or above the mid-80s to be a full sell signal.

With that said, we see strong potential in the Dec24 option pit. Trading around 77 cents this morning, we see 5-10 cents potential in ordinary seasonal fluctuations and are buying bull call spreads on our own account.  

Daily Technical Analysis:

The overall standard daily technical analysis for the Mar contract remains bearish with the market still oversold.  The contract again settled below the majority of its most-referenced SMA periods.  Daily money flow remains positive as the contract trades near the bottom of the 60-day regression channel.  A gap remains below the market on the continuation chart at 67.64 – 68.02 and above the market at 122.73 – 122.81. Longer-term downward momentum slowed yesterday.

Daily Statistical Analysis:

Our proprietary daily models suggest that Mar futures will likely move higher today.  Our proprietary index of technical indicators also favored a move higher for today’s session.  We expect volatility to increase over the near term, with overall risk to the upside expected to be greater than that to the downside.


The balance of the fundamental, technical, and statistical analyses suggest that Mar futures will most likely settle higher today and higher for the week.

The following table provides, respectively, our daily and weekly directional bias, as well as our overall trading range expectation and our statistically predicted day trading range.

Day Trades:

The tables below provide, respectively, simple, and exponential moving average (SMA and EMA) for the front month, daily and weekly pivot points and daily technical signals from a suite of base technical indicators.

The following table provides a linear series of shorter-term through longer-term support and resistance levels as well as major trading points for the most recent trading day and week for the front month.

Market Factors

Bullish Factors:


  • USDA projects 2022/23 domestic C/O at 3.2M bales
  • USDA projected world offtake at almost 115M bales
  • Mar – May spread far less than full carry
  • Seasonality
  • Indian production significantly lower Vs last season
  • Spread strengthening W/W


  • Proprietary daily statistical analysis
  • Proprietary Weekly statistical analysis
  • Market is oversold

Bearish Factors:


  • China reserve sales are weak
  • Cert stock near accruing
  • Overall slow demand for US cotton
  • Cotlook projects production surplus of 7.75M bales
  • US export sales weakening
  • USDA projects 2023/24 world C/O at almost 81M bales
  • US currency strengthening


  • Standard daily technical analysis
  • Standard weekly technical analysis
  • Money flow is negative
  • Longer-term momentum is negative
  • Settlement above all most-referenced SMAs
  • 60-day trend is negative

Economic/Crop Report Release Schedule – Major Reports & Events

Monday, Nov 13:

  • Weekly Crop Progress (USDA)
  • Commitments of Traders - delayed (CFTC)

Tuesday, Nov 14:

  • Inflation Rate (US)
  • CPI – (US)
  • GDP Growth – (EU)

Wednesday, Nov 15:

  • Swaps Report (CFTC)
  • Retail Sales (US)
  • PPI – (US)
  • Balance of Trade (EU)

Thursday, Nov 16:

  • Cotton On-Call Report (CFTC)
  • Export Report (USDA)
  • Jobless Claims (US)

Friday, Nov 17:

  • Commitments of Traders (CFTC)
  • Weekly Cotton Classing (USDA)
  • Inflation Rate (EU)

Index Fund Roll Schedule

Goldman Sachs Commodity Index:

  • Dec 7, 8; 11 – 13

Rogers International Commodity Total Return Index:

  • Nov 29, 30; Dec 1

Dow Jones-AIG Commodity Index:

  • Dec 8; 11 – 14

Deutche Bank Liquid Commodity Index:

  • Dec 4 – 8

Reuters-Jefferies-CRB Total Return Index:

  • Dec 1; 4 – 6

S&P Commodity Index Geometric Series:

  • Dec 7, 8; 11 – 13

Merrill Lynch Commodity Index:

  • 1st – 15th business day of each month

Disclaimer: This publication is presented for informational purposes only.  While the information contained herein is believed to be accurate and factual, the possibility of error exists. Hypothetical models have known limitations and may diverge from actual market behavior. Past performance, whether actual or indicated by simulated historical tests of strategies, is not necessarily indicative of future results.  Commodity trading is an inherently risky proposition and there is no guarantee that trades based on the information included herein will result in profitable outcomes.

This post was written by Louis Rose