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Market finally gets a chance to catch its breath
01
Feb '08
NY futures ended the week slightly lower, with March giving up another 60 points to close at 67.79 cents, while December dropped just 22 points to close at 76.40 cents.

After all the excitement in recent weeks the market finally got a chance to catch its breath, as it traded the last six sessions in a very narrow sideways range of just 185 points, alternating between higher and lower closes. Volume dropped considerably as well, as it amounted to a relatively slow 20'000 contracts for most of the week before spiking to nearly double that during today's more active session.

Open interest held steady over the last few days, after declining by about 18'000 contracts the week before. The spec/hedge report as of last Friday showed that the drop in open interest was almost entirely due to spec long liquidation, as specs reduced outright longs by 18'778 contracts, while on the other side of the ledger we had trade shorts covering 15'735 contracts and spec shorts buying back 2'557 contracts.

In a bull market we typically see strong volume on up days as well as expanding open interest, the kind of action we had between the beginning of December and the middle of January. However, the contraction in both volume and open interest over the last couple of weeks tells us that the market has lost its upside momentum and that it is now trying to find a level from which it can hopefully gather enough steam to challenge the recent highs again.

Most of thisloss in momentum can be tied to the uncertainties surrounding the economy, since cotton never had a lot of internal strength when it rose to higher levels but instead piggybacked on the bull markets in grains and soybeans as well as the investment flows into commodities.

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