The next resistance is at 76.39 cents, its intraday high from October 17, traders said. "That's the level we need to take out if we're to continue in this uptrend," said Boyd Cruel, analyst for Vision Financial Markets in Chicago. A record global surplus is still expected in the 2012/13 marketing year. But the market broke out of downtrend a week ago after the US Department of Agriculture's monthly crop report. The US government cut its crop forecast for Texas, the country's biggest producing state, where a dry spell has hurt output. Only US cotton is deliverable against the exchange.
Otherwise it was viewed as a broadly neutral report. Without any significant turnaround in supply-and-demand fundamentals, the three-day rally has caught some textile mills by surprise. Brokers said they have started to fret about rising purchase prices, but the gains may prove temporary if producers start selling into the rally and investors lock in profits ahead of the year end. On charts, the gains sent its relative strength index (RSI) to 65, its highest reading since mid-October and close to 70 which is considered overbought territory.
"It's overbought, so if we hold the October high, we might see some year-end profit taking," Cruel said. The recent rebound has put fibres on track for their biggest quarterly gain since the first quarter of 2011. Prices have risen more than 10 percent since November 9. This would be only the second three-month stretch of gains for the fibres market since its meteoric rise in early 2011. The other was in the first three months of this year.
The circumstances surrounding the latest gains are in marked contrast to 2011 when prices peaked above $2.20 per lb after a two-year rally that came on healthy demand from China and as a severe drought wiped out much of Texas' crop. For the year to date, though, prices remain down 17 percent and set for a second yearly double-digit decline. Cotton was the biggest decliner of the 19 commodities tracked by the Thomson Reuters-Jefferies CRB index.