Market traded in a very narrow range today as the majority of volume was spent rolling Dec's to March'08 between 450/460 pts. Volume was strong with 63,000 futures and 6,000 options showing that there is definitely a bigger push to get our the door with only 6 trading days left and 70k left in December this morning.
We should see open interest decrease below 60k tomorrow morning and continue at the same pace until the Thanksgiving break next week. Cotton did open higher after the sharp fall yesterday, but had limited upside as very few commodities were up as oil fell and the stock market rallied.
Cert stocks continue to rise as we are currently at 630k with 45k awaiting review. This amount of old crop cotton is finding its way to the board with NY at levels that make it very difficult to find a home outside the U.S. and new crop deliveries picking up at a steady pace.
With most shippers moving prices to H'08 for Jan forward shipment, the sales from the U.S. will get even slower over the holiday season. This weaker demand along with a spec hedge report today of 30.3% compared to 24.1% last week makes the market fundamentally looking over bought.
Technically, if the market holds near this level to lower, the 9 day moving average will cross the 50-day to the downside for the first time since the market had a 12 cent retracement from the highs set in July'07.
Based on the large spec long position, growing cert stocks and lack of demand over the next 6-8 weeks, as long as the dollar can stabilize and oil continues to weaken, cotton is vulnerable to test the mid 60's based H'08 and sparking more technical sell signals.
The stock market looks like it is stabilizing which should strengthen the dollar and weaken commodities.
marketing@alchempro.com
