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Pull back in cotton market disorganizes trade
19
Jan '08
Cotton pulled back today based on weak corn and beans as well as the worst weekly performance by the S&P index in 5 years. The concerns over the economy are having some impact on overbought commodities which do not have sustainable gains. We have managed to stay in the same 300 pt range all week after our limit up follow through move on Monday.

Volume was returning back to normal today with only 20,000 futures and 18,000 options as we increased open interest to over 280,000 contracts showing the willingness from the funds to keep adding on to their position.

We are heading into a long weekend where the market will be closed on Monday, but at the moment there seems to be good support at 70 cents where we may trade sideways in the short term waiting for opportunities to retest the highs. Some hand to mouth business has been uncovered on this pull back, but its obvious the mills are nervous and uncertain on how prices will behave long term.

With corn and soybeans struggling as well as the stock market having so much trouble lately, we may see an equity induced pull back across the board which may push cotton back into the upper 60's. We are very close to Chinese New year starting on Feb 7th, so hard to see any large demand entering the market over the next 4 weeks unless we sold off significantly.

Obviously, the technicals are still positive as we closed above the 9-day moving average, but we do have several over bought signals which may eventually break the funds and find some sell stops. 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 seeing the stock market reaching 15 month lows, it could be hard for the blazing hot commodity market to continue on this pace. Tuesday will be interesting to see after a long 3-day weekend.

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