Market was called higher on the opening as locals came in long from yesterday and were trying to keep the momentum moving higher. Unfortunately all the locals found was heavy trade selling and bearish options.
One trade in particular was buying he H'07 53 put and selling the K'07 59 calls 2-1.
This was an example of some of the option trades that lead to the weak close. Locals liquidated their long positions after trying to keep the rally from yesterday going a bit further.
It looks like we will see plenty of trade related selling with H'07 over 53.00 cents and the market will need to close above 53.50 to keep this market moving higher.
Spreading was the main feature once again as we are getting closer to options expiration and First Notice Day in Z'06. Specs reduced their short position last week from 13.4 percent to 11.9 percent.
The fact that we are 200 pts above the lows and the market was due for a bounce seems to be running out of steam. Average cotton prices in China fell in October over 1,000 CNY/MT.
This was mainly due to the increasing supplies from new crop which is expected to be almost 15 percent bigger than last year. Not to mention the very large consignment stocks that are sitting in China and moving very slowly.
Market seems to be in a range at the moment between 48/50 in Z'06 with the spread being the main feature in another session that was barely above 10,000 contracts in volume.
Technically nor fundamentally is their a case to see a strong rally in NY as the trade will continue to be sellers scale up and eventually the specs and locals will get tired of fighting it.
Will see if the rally is truly over or maybe just needed to see some profit taking before we make another test of the highs. Energy and metal prices rebounded today as grains remained firm and the dollar closed weak.
marketing@alchempro.com
