"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Wednesday, March 9, 2011

Cotton showing signs of losing upside momentum

I wrote earlier today about the copper market looking very vulnerable here based on its daily price chart. In scanning some of the commodity markets another one is giving some signs that it too is possibly ready to wind down - Cotton.

As you can see by the chart, cotton has staged one of the most ferocious upside moves that I can recall in a commodity with perhaps the exception of Minneapolis Wheat some time ago. It is currently trading at levels not seen since Reconstruction when much of the South was laid waste coming out of the War between the States in 1861-1865.

The CCI, Continuous Commodity Index, has benefitted a great deal by this massive display of strength but in looking at the cotton chart, it is giving off some signs that its upward strength is sagging. This is not to say that it has topped yet - it has given off three separate signs of topping in its huge run and has gone on to negate every one of those signs and make new highs. But I do believe this bears watching.

We are beginning to see some evidence that various commodity markets are now topping out - Wheat, Sugar, Copper, and perhaps Cotton among them. Cocoa is beginning to look a bit heavy as well.

On the other hand we have Crude Oil, Gasoline, Heating Oil, Cattle, Hogs and Coffee all looking very strong.

In other words, we are beginning to see some of these markets now beginning to trade more on their own set of demand/supply fundamentals and not just getting a solid bid based on the Fed's debauchery of the US Dollar which resulted in money being pretty much jammed into the commodity sector rather indiscriminately. This development is going to cause the CCI to rise at a slower rate than it has heretofore been rising barring some sort of sudden development that affects a large portion of this group of commodities.

The wild card in all of this is the movement in the price of crude oil. Nearly all of our markets right now are basically trading crude. How it fares in the weeks ahead is therefore going to determine what some of these other commodities will do.

I also think we are going to continue seeing managed money flows ebbing and flowing into the food, base metals, and softs versus the energies and precious metals based on developments in MENA that could curtail oil production.

This is going to add another element of volatility to the markets. Fasten your seat belts; it is going to be a wild ride.


  1. much of this commentary alludes to the stall in PM's?

  2. Hey Dan, you sleep too long. Here it's almost 4 in the afternoon and no report from you yet. I do not comment a lot, but I read your stuff very carefully! There is plenty of things going on, so say something! :)

    Ahh, and thanks!


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