Cotton futures continued their Wednesday rebound in overnight trading. Technical momentum may have played a small role in the rise, the main cause of the advance arose from China once again. That is, the Chinese Cotton Association reportedly confirmed that government officials for the Asian giant will continue their program of building cotton inventories next fall. This certainly seemed to lend additional credence to the Wednesday USDA WASDE report, which implied that surging Chinese inventories will play a major role in boosting the global carryout. Ultimately, that may render the Chinese market vulnerable to a breakdown if/when the government backs away from its buying program. On the other hand, supplies in the Rest-Of-The-World could prove very tight with over half of global inventories tied down in China.

The weekly USDA Export Sales report seemingly had little to excite traders on either side of the market, since the results (old crop at 147,100 running bales and new crop at 170,900 running bales) were unexceptional. For example, the old crop sales total dipped 1% under the comparable week-ago result and the average for the four weeks prior.

Given these circumstances, bullish traders had to be deeply disappointed with cotton futures action Thursday. Not only did the market fail to build upon its Wednesday rally, it turned decidedly lower and ended the day around its lows from earlier this week. The fact that nearby futures apparently failed in testing chart resistance associated with their 40-day moving averages suggests considerable technical weakness. Thus, it would not be terribly surprising to see cotton futures resume their recent decline during the days ahead.