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Cotton market rallies but remains unchanged at close
21
Jun '08
We started out lower overnight and even tested the lows from Thursday after bearish options hit the market early. By the time grains opened in Chicago, crude oil was already 4 dollars higher and the dollar and stock market were falling so cotton bounced.

We rallied up with the grains, but eventually fell after they came back off and closed near unchanged. Volume was light as we square up for the N'08 FND (10,000 OI this morning) with 16,000 in futures and 14,000 in options.

Beneficial weather continues to improve the conditions in West Texas as the market looks for bullish news to fuel the rally from earlier this week. The COT report came out today and did show a swing with non-commercials adding to their long position and the trade adding on to their shorts (see page 2 in attached PDF).

However, more important is the huge drop in open interest which shows that cotton is not on the radar of hedge funds who are pouring money into the commodity index which is almost back to the highs set at the first of March while the US dollar sits on the lows set at the same time (see page 3 in attached PDF).

Technically, the market is looking toppy with several commodity sectors trading at contract highs. The MACD's are turning south recently in several of these sectors as we have been moving sideways and running into strong upside resistance.

Cotton will continue to follow the other commodities prices as the dollar and equity markets struggle, but our market is finding good resistance at these levels and will have to wait and see if it can break through or we eventually go lower.

At the moment, demand is dead, cert stocks are rising and we are seeing a slow down in the commodity index which could set us up for a pull back.

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