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NY Cotton futures display mixed trends this week
28
Mar '14
Although this week’s trading action may have felt like a victory for the bears, the chart reveals that the market has actually moved sideways in the last 15 sessions, with May closing in a tight range between 91 and 94 cents since March 6. This settlement of 92.56 cents sits right in the middle of this narrow band. 
 
Bulls and bears certainly tried hard to sway the market their way, as this week’s wild intraday swings illustrate. Monday’s low of 89.74 cents and Wednesday’s high of 97.35 cents produced a three-day range of 761 points and tripped up scores of nervous longs and shorts in the process. Volume was impressive as well, with a combined 123’600 contracts changing hands between Monday and Wednesday, before cooling off to just 17’400 lots.
 
Interestingly, despite all this heavy trading we didn’t see much of a change in open interest. Overall open interest actually increased by 389 lots to 184’162 contracts since last Thursday, indicating that there hasn’t been much liquidation yet. There was some position rolling though, as May open interest dropped 6’723 contracts, while July and December saw theirs increase by 4’983 and 1’400 contracts, respectively. 
 
Judging by the open interest we have to assume that the structure between longs and shorts has not materially changed this week. The net long is probably still equally split between index funds and spec longs, while the trade continues to carry a substantial net short, most of which is in current crop futures. 
 
We believe that this set-up is the main reason why the market has not caved in yet, even though it had every reason to do so after the weak session on Monday and then again on Wednesday, when May closed 569 points off its high. In both instances the market rebounded the next session rather than following through to the downside. The large trade short position provides ample support to current crop futures, as merchants continue to scramble out of basis-long positions (selling physicals/buying futures) and mills still had nearly 4.5 million bales to fix on May and July as of March 20. 

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