Market was unchanged early as cotton retested the lows from yesterday, but eventually made a rally and was able to find buys stops and break the 9-day moving average. The cotton market had lost over 500 pts in the last 13 sessions and was ready for a bounce as open interest had been falling and showing a lack of commitment.
op The dollar made a strong bounce today as energy and metal prices fell lower, but eventually gave back most of the gains by the end of the day. Volume was back down today to only 21,000 futures and 17,000 options as the market made its biggest bounce in several weeks.
It looks like the stock market is pricing in a Fed cut of interest rates on Dec 11 which should keep the dollar in check to lower and continue to support commodity prices as wheat locked up the limit today. Cert stocks remain stable and open interest remains low in cotton at under 210,000 contracts.
I was mistaken yesterday in mentioning that the spec long position was 27.1 as it was actually 22.5%. This makes more sense as we had been seeing a large dose of spec liquidation during the Z'08 roll in the last 2 weeks.
The charts for the spec position and cotton open interest in attached PDF on page 2. This bounce broke us out of the technical bearish trend channel and may lead to more tests of the upside into scale up trade selling.
We were seeing good long term buyers in the Z'08 and N'08, as the H'08 finally stepped up today as well. RSI had reached the mid 20's and with the spec long position near the lower end of the 6 month range at 22.5%, we had oversold signals that lead to a bounce off the 6-month uptrend line. Demand still appears weak and we should run into good trade scale up selling in H'08 over 66.00.
The stock market bounced back today and looks like investors feel comfortable the Fed will keep cutting rates to promote growth and delay taking measures against inflation. This should keep the dollar on the defensive and commodity prices firm.
marketing@alchempro.com
