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Cotton manages friendly close
16
Jan '08
After two crazy sessions of the market locking up the limit with electronic trade being suspended and record options volume trading synthetically, we returned to a fairly normal day. The market traded 30-40 higher over night and even went below unchanged early in the day, but did find support in H'08 near 71.00 and Z'08 under 79.00.

However, there was a collective pulling back today in all the commodities including the stock market, but cotton did manage to pull out a friendly close and leave speculation that the tops could be tested again. Volume was above average with 44,000 futures and 40,000 options as we wait to see if we can break through 80 cents on Z'08 and continue this rally.

After a 10 cent correction from the lows in early December, the market seems to be getting good hedge pressure for current crop as well as new crop. We will have to see if the specs have enough ammunition to break through this level, but we would expect they are over 30% long even with record open interest which broke 270,000 contracts after yesterdays record volume.

Export sales and shipments, may start getting better this week after the holiday break, but doubt we will see strong numbers any time soon with the market trading at these contract highs. The back months in wheat and soybeans were strong and this will be the key short term to see if cotton will stabilize or move higher.

Obviously, the technicals are still positive, but we do have the RSI back near 70 and the business remains weak. Fundamentally, there is no reason for the market to go higher, but we are in the middle of a fund driven spec rally which the trade are unable to control. After some weakness early in the day, it looks like we may be setting up for a short term sideways trading range between 71/73.

We could establish a short term flag pattern which will eventually break out to the upside or downside depending on where grains trade nearby.

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