Cotton continues to be under pressure as FND for Z'07 is only 2 days away. We had only 26,000 Z'07's left after Friday going into today with above average volume of 38,000 futures and 10,000 options. Technically, the market is under pressure through notice period as the Z/H'08 spread got as wide today as 562 pts.
Cert stocks are growing and demand continues to be sporadic even with the recent break in NY. The market has created a bull trap which has caught some long positions off guard and may lead to some defensive bearish options entering the market if the bleeding does not stop soon.
The spec long position came in lower today as they obviously reduced their exposure over the last week from 30.3% to 24.6% as of Friday. Please see the chart in attached PDF on page 2 as we track the extremely resilient spec long position over the last 6 months.
However, if you notice the weekly chart also on the second page, you will notice the market has broken the bottom line of the bullish trend channel that started 6 months ago as well. In either case, the USD is holding fairly firm as the stock market continues to struggle against fears of a weak 4th quarter and possibly weaker numbers coming in the future.
Technically, we broke the downside trend line which began in May of this year and will have to see how many more profits could be taken as we approach the long holiday weekend. The 9 day moving average crossed 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 bearish technicals, large spec long position, growing cert stocks and lack of demand, cotton is vulnerable to test the lower 60's based H'08 and sparking more technical sell signals. The stock market continues to struggle and most of the commodity complex is also very anxious at these lofty levels as we get closer to year end profit taking.
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