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Market undergos huge pressure due to lack of technical support
Jun '08
NY futures continued to slip this week, with July dropping another 134 points to close at 64.65 cents, while December fell 163 points to close at 73.01 cents.

The breach of important technical support invited more spec selling, which put the market under a lot of pressure throughout the week. After some damage was done on the daily chart over the last couple of months, the market was trying to hang on to a major uptrend line on the weekly chart, which ran through about 66.50 cents this week, but to no avail. The market clearly broke through this line of defense, which triggered a lot of spec selling that forced the market down to a low of 63.10 cents before rebounding slightly.

Speculators were clearly the driving force behind this selloff and there was again a lot of talk about the potential impact the CFTC investigation might have on spec long positions. Some prominent market commentators stated that a regulatory backlash against hedge funds could lead many of them to exit positions. However, we do not necessarily share this pessimism, because in the case of cotton these specs do not have that much of a long position left to liquidate.

According to the latest CFTC "Commitment of Traders" report, large speculators held just 45'000 contracts of outright longs, down from almost 99'000 contracts at the end of February.

Meanwhile, large outright spec shorts increased their position to almost 27'000 contracts, up by over 9'000 contracts in the week of May 20 - 27 alone and up by over 21'000 contracts since the end of February.

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