The market took a turn today as we broke out of the uptrend range that had been forming. There is suspicion that some of the large index fund longs might have started rolling today which would explain the spread widening out to its widest level in two weeks.
We also hit stops and additional fund and local selling kept the market in retreat all day. Volume was good with over 20,000 contracts, as we settled near the lows and spreads from Z'06 to H'07 got as wide as 355 pts. where the market settled on the close.
Cert stocks continue to grow with over 775,000 b/c and almost 50,000 awaiting review. Imports from China continue to also be a huge weight on the markets as we struggle to make sales.
A Chinese cotton future also fell over night and was another weak factor that contributed to the sell off.
The traditional Goldman Sachs roll does not officially begin until November 7 ahead of the Dec 22 first notice day, but there seems to be other index funds starting earlier which added to the pressure on Dec and may get stronger when Goldman hits the market.
Technically the market has shifted back into the bearish trend channel with a close below the 50 cent level and Dec'06 will need to close above 51.00 cents to get back on the bullish trend line.
With so much open interest in Dec still to roll, it seems the market will mostly be focused on spreads that are going to keep pressure on the Dec contract and we may even test the 48.00 level again before expiration.
marketing@alchempro.com
