Market traded in a very quiet fifty point range during the day in spite of much stronger markets in grains, energy and metals which where energized by the record low close of the USD against the Euro.
The market is pricing in a 25 point Fed cut of the discount rate to be announced on Wednesday which has served to fuel the stock market and push for record highs in the commodity index. The volume was average today with 20,000 futures and 12,000 options which continued to find buyers for the H'08 75 calls and sellers of the Z'07.
Cotton continues to struggle against the new crop harvest pressure but finds support from the competing crops as well as some fundamental production cuts coming out of Pakistan. The spec hedge report shows a small pull back in the spec position to 25.3% long, but this is more a case of the growing open interest than a reduction in the spec longs.
The cotton market looks to be struggling to find new information to trade on as we continue to see slow demand from mills for U.S. cotton as India seems to be getting most of the attention for Nov/Dec shipment. Cert stocks continue to grow back after last weeks decert and spreads continue to widen with most of the buyers showing up in the back months.
Technically, the chart looks indecisive as we continue to trade in a 200 point range between 63.50 and 65.50. With less than 10 trading days to expiration on December contract options, volatility has come in and settled at 20.50%. As funds started their cover month switches, spreads between December 07 and forward cover months have further widened.
With a record high open interest, it will be interesting to see how far specs are taking their long positions in cotton. The Fed announcement on Wednesday and the short term fate of the USD will have a big impact on cotton in the short term.
marketing@alchempro.com
