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Market trades in a narrow range
11
Jun '08
Market traded in a narrow range on light volume closing near unchanged. The big news today was the USDA S&D numbers for all commodities which were mostly neutral to bearish for cotton and the grains as you can see a summary on page 2 in attached PDF.

The market seems to be settling into a rolling mood as July open interest fell 7,000 contracts yesterday and a total of 16,000 over the last two sessions. We are now down to 85,000 contracts left in N'08 and they probably came down again today another large amount as we are getting to the point where the large index funds start to roll. Volume was average with 24,000 futures and 8,000 options as we wait for options expiration on Friday.

Taking a look at the USDA numbers, we did have a significant cut in cotton production for the 08/09 season as ending stocks fell almost 1.5 million bales. The Northern hemisphere cotton crop is still very young and many things could happen if we get the rain that we need in the next 2-3 weeks in West Texas.

Export sales on Thursday should be on the lower end from last week and closer to the 5 week average of 250k sales and shipments. At the moment, cotton prices look like they are forming a sideways trading range between 66/68 as we get through options expiration. There is good technical resistance at 69 cents and we did have another pull back today in other commodities which kept a lid on grains and cotton.

Technically, the MACD is crossing higher this week and RSI has room to go higher at 42. The upside resistance is limited until 69 cents but we do have options expiration on Friday with a large volume of 70 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 should hold up through expiration.

However, the upside feels limited as we still have over 80,000 contracts in N'08 to roll forward. The spreads are coming in slightly, but cert stocks keep ticking higher so the resistance on cotton scale up is going to stay in place.

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