Market traded lower electronically as there was some profit taking after such a strong performance on Monday. There was also some concern over the Fed's FOMC announcement tomorrow as we continue to see signs of a recession.
Due to the record weak dollar and strong oil prices, the Fed may try to take some precautions against growing inflation concerns and not lower interest rates 25 points. If that happened, we may see a pull back in the record gains that have been seen recently in the commodity markets.
The crop is now over 50% picked and starting to weigh on the market in the form of new crop fixations anytime Z'07 is over 65.00. The pull back today helped the spreads widen out further and caused some more rolling from Dec to March which added to the high volume in futures of 35,000 contracts and over 13,000 options.
Cert stocks continue to grow as well as open interest, but options are expiring next week which may keep the market trading sideways in the current range between 63/65.
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 21%. 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 willing to hold 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 as December expires.
marketing@alchempro.com
