SARS Picks at China, Copper and Cotton

Still Threatening

China is the world's largest producer and consumer of cotton. It is also the largest importer of the fiber, since it doesn't produce enough to satisfy its needs. The U.S. is the world's biggest cotton exporter and unloads a large chunk of its production in China. Any threat to the Chinese demand, such as a downturn in economic activity there, is a potential threat to the price of cotton in the U.S.

Indeed, July cotton (CTN3:NYBOT) broke down Monday in one of its biggest declines in years. While the heavy dose of selling off the double top is reaching into oversold territory now, the die is cast, and cotton is a downside momentum market. Any reaction rallies should be sold.

Fast economic growth over the past decade has also made China a heavy user and importer of copper. The projected drop in Chinese GDP is likely to hurt global prices. July copper (HGN3:COMEX) is in a similar set-up to cotton, in that it too is sitting at a multimonth low after descending from a double top.

However, copper didn't crack below support Monday, meaning there's still the opportunity to participate in any breakdown that might occur from the current low-level consolidation.