Cotton fed off of strong gains on Friday and ran through buy stops on its way to a 9-week high. The concerns over new crop conditions and the explosive grain market have given cotton the momentum to break through the 100 day moving average.
We traded synthetically over another limit higher early in the day and then backed off to spend the rest of the day near 300 higher across the board. Volume was good with 35,000 futures and 51,000 options as we continue to see a good chance for cotton to go higher.
27,000 decerts this morning showed there is a tendency to start redeeming some of the old crop cert stock which still makes up 350k of the 1.6 million bales. That cotton is more than likely sold and will continue to get redeemed as we move into the third quarter.
There is still a general push toward commodities to create a hedge against rising inflation. The US dollar fell hard again today and even soybeans eventually fell as there is forecasted better weather coming up North. West Texas is still very dry and hot which will be a bigger issue the longer we go without rain.
Technically, the MACD is crossing higher and RSI has room to go higher at 69. We ran into some resistance near 72.40, but once that was broken, N'08 had no trouble finding buy stops. We are setting up for a seasonal high in the short term as all commodities are testing contract highs or on them.
Cotton will continue to follow the other commodities prices higher as the dollar and equity markets struggle. Friendly options and rising volatility has the tendency to go higher. However, it is unusual to see the market rising so quickly while open interest has fallen 20% over the last two session falling to 230k and there is only 30,000 left in N'08.
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