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Cotton compressed and dropped – other agrimarkets too, plus bonds

Cotton futures made a daily-scale compression and dropped out of the bottom of it on Wednesday. This means that a new down-trend has probably begun and that it is a good idea to sell short. Our portfolio can't take any more commodity trades for the moment as we are already short of Corn and Soya Oil and long of Natural Gas, but we may take this trade later if we have room and if there is the usual 'return to compression' in a few days time - a bounce in other words.

Other agricultural markets are producing similar signals:

Soy, oil, ctn, corn

This fits the picture that we also see in the main Reuters commodity index, which compressed in early October, rallied and compressed again on Monday and Tuesday before dropping for the last three days - see below. This newest trend downwards will probably keep going for a little while longer - we are watching all these markets for signs of bottom extensions that might indicate the drop is ending but there is nothing yet.

Wheat is the odd one out, as it is holding steady despite record yields. It too may start to fall eventually but we have no signal that tells us this is imminent:

Comm ind, wheat

Meanwhile, bonds have dropped as we suggested was likely in the October 29th edition. The day after this was published there was a further compression that also broke downward and now the drop has accelerated. There is likely to be a substantial fall in the weeks to come and so we are watching closely for additional chances to sell short.

Bonds drop from comps

We will advise.