Interviews
Cotton closes higher for the 8th time in last nine weeks
11 May '09
5 min read
As of May 1, the spec/hedge report showed the specs to be net long 15 percent of the open interest Possibly more important is the fact that commercial hedgers were short 1,860,500 bales with 3/4 million bales in the "house" accounts controlled by the MMM's; major Memphis merchants that clear their own trades. July cotton has gained 265 points since May 1st. This weeks report, due Monday afternoon will no doubt show another increase in both categories since there were sizable redeemtions from the loan last week.
The open interest is building as fresh buying now exceeds short covering. In the first four days last week, open interest increased 6,941 bringing the two week total increase to 12,751 contracts or over 1 1/4 million bales. As I commented a couple of weeks ago, the buyers seem to have deep pockets and are not easily shaken out on dips. The 20 day stochastics have continued unabated with grossly overbought readings for one solid month. I feel like a stuck record saying the combination of extreme over-bought readings and almost irrational market performance make it difficult to predict either upside targets or support levels with any confidence.
It seems apropos to remember John Maynard Keynes' famous quote, "the market can remain irrational longer than you can remain solvent". Last week, I felt that reasonable upside targets of 6175 and 6335 to 6400 could not be achieved until after a correction. I still feel that way. However, cotton has shown the ability to move unimpeded much further without a correction than anytime since the debacle of last March. For the last four weeks, like it or not, any early weakness has proven to be the opportunity to buy the market These dips do not qualify as a correction.
Since every single session last week had higher lows and new weekly highs on Friday, there might be some sell stops below 5725, 5697 and 5656, However, a pull back all the way to 5500 would actually be a welcome opportunity. The key 20-21 day moving averages are around 5300. A 50 percent correction of the last six weeks climb is far below at 5200.
The open interest is building as fresh buying now exceeds short covering. In the first four days last week, open interest increased 6,941 bringing the two week total increase to 12,751 contracts or over 1 1/4 million bales. As I commented a couple of weeks ago, the buyers seem to have deep pockets and are not easily shaken out on dips. The 20 day stochastics have continued unabated with grossly overbought readings for one solid month. I feel like a stuck record saying the combination of extreme over-bought readings and almost irrational market performance make it difficult to predict either upside targets or support levels with any confidence.
It seems apropos to remember John Maynard Keynes' famous quote, "the market can remain irrational longer than you can remain solvent". Last week, I felt that reasonable upside targets of 6175 and 6335 to 6400 could not be achieved until after a correction. I still feel that way. However, cotton has shown the ability to move unimpeded much further without a correction than anytime since the debacle of last March. For the last four weeks, like it or not, any early weakness has proven to be the opportunity to buy the market These dips do not qualify as a correction.
Since every single session last week had higher lows and new weekly highs on Friday, there might be some sell stops below 5725, 5697 and 5656, However, a pull back all the way to 5500 would actually be a welcome opportunity. The key 20-21 day moving averages are around 5300. A 50 percent correction of the last six weeks climb is far below at 5200.
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