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Average volumes in cotton market
Jun '08
After strong closes across the board on Friday, we were preparing for some good follow through today in all the commodity markets. However, it was somewhat of a let down as the dollar bounced back and almost all the commodities slipped as the stock market made back some losses.

Oil was weighing heavy on the market by giving back 3% after last weeks 13% rally in two days. The grains opened strong but eventually fizzled and cotton did the same after running all the way to 76.13 based Z'08. This represents a retracement of 450 pts from the lows set last Tuesday at 71.65 c/lb.

Volume was average today with 29,000 futures and 9,000 options, but the open interest fell significantly on Friday over 6,000 contracts to 268k. The spec long position fell again this week to 3.5% from 4.8% last week but seems to be leveling out after seeing a mostly unchanged Commitment of traders report on Friday.

We are seeing fundamental support from the dry hot weather in West Texas as we get ready for the USDA S&D report tomorrow. There is general consensus that the 07/08 export number at 14.2 million bales is too high and will have to come down. Hard to see any other major changes, but we will get a full country by country breakdown on the 08/09 numbers tomorrow.

Technically, the MACD is crossing higher this week and RSI has room to go higher at 37. The upside resistance is limited until 69 cents but we do have options expiration on Friday with a large volume of70 cent puts sitting above the market. With such a strong bounce in commodities across the board last 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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