NY futures moved higher this week, as spot December gained 95 points to close at 64.69 cents, while December'08 advanced 63 points to close at 75.48 cents.
The only excitement this week occurred when the market broke out of a sideways triangle formation on Tuesday, which sparked a flurry of spec buying. However, even though the market pierced briefly through the upper end of its five-week trading range on Wednesday, it proved to be nothing more than a flash in the pan, as there was not enough follow-throughs buying to push the market through overhead resistance.
When compared to the rallies we have seen in other commodities and factoring in the very weak US dollar, the cotton market continues to disappoint, as it is clearly underperforming in terms of these outside markets. Gold and crude oil have been particularly strong recently, with gold rallying about 180 dollars an ounce since the middle of August and crude oil gaining around 25 dollars a barrel during the same time frame.
Conversely, the US dollar index continues to slip from one historic low to another and it currently trades about 12% lower than a year ago and nearly 20% lower than in November 2005. Therefore, when we adjust the price of cotton for the currency loss, we have hardly seen any headway being made over the last couple of years.
Nevertheless, hedge funds, index funds and the public at large continue to believe that cotton will sooner or later have its day in the limelight, as they place additional bets on the long side week after week.
marketing@alchempro.com
