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Cotton experiences a volatile trading session
02
Jul '08
We experienced a very volatile trading session Tuesday. The weakness from Monday carried through and even a friendly reopen of the grains market didn't offer enough support for cotton futures. Z'08 slipped to today's low at 76.03 after a temporary bounce. The pull back in the previous two sessions encouraged more selling interest from the funds.

Actions in the options pit were mixed during the day, with some 3,000 contracts December put spreads sold in the early morning, and more put selling later on which lowered the volatility. Then some put buying interest came into the market which added more weakness on the day.

Cotton was trading near session low during the afternoon session before settling at 229 points lower. Where do we go from here as Z'08 is testing the 75 cents level. Lower market prices paired with reducing open interest and no anticipated demand in the near term give us some very bearish directions. Funds are now 7.2% net long as of June 27th, up from last week's 4.5% (charts are on page 2 in attached PDF).

They have potential to go either longer or shorter at this moment. There is bearish fundamental on one hand as macro-economy keeps weakening and demand has dried out near term, and there is the generally higher commodities price on the other hand, which puts pressure on cotton prices to rise in order to fight for acreage.

Today's session painted another negative picture on the technical chart. December contract easily broke through the 76.50 level and made a run for the 75.50. It now settled below both moving averages and MACD starts to cross downwards. Trading was extremely choppy amid uncertainties in the market.

We could continue to trade lower this week and challenge the 75 cents level basis Z'08, or we could trade in consolidation as the market is heading into the holiday weekend. Fundamental wise, we will not have another big news until the supply and demand report to be released next Friday. Meanwhile, cotton is likely to continue following the outside markets.

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