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Cotton markets expected to bounce back next week
07
Jun '08
Grain markets traded higher overnight and gave support to cotton which rallied almost limit up at one point. Grains eventually came down later in the day which contributed to the profit taking pull back.

Today the headlines were new record oil prices which went up today almost 8% or over 10 dollars a barrel and 12% in the last two days.

Volume was strong today with 52,000 futures and 14,700 options. Obviously, energy at these levels along with the growing volatility, will be a major factor in how cotton behaves next week.

We are seeing less demand at these levels and suspect there is good scale up trade selling above 75.00 in Z'08. The cotton market was due for a bounce and we will have to see if we can uncover some buy stops along the way or this rally will be short lived.

Technically, the MACD could cross back next week and RSI has room to go higher. The upside resistance is limited until 69 cents but we do have options expiration next week with a large volume of 70 cent puts sitting above the market.

With such a strong bounce in commodities across the board this week, the low established on Tuesday at 63 cents may hold up through options expiration.

However, the upside feels limited as we still have over 100,000 contracts in N'08 to roll forward. The spreads are staying wide and cert stocks keep ticking higher so the resistance on cotton scale up is going to stay in place.

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