NY futures bounce back this week
Nearby NY futures bounced back this week, as May rallied 347 points to close at 82.24 cents, while December was up by just 2 points to close at 75.15 cents.
The market has been behaving in textbook like fashion since running up nearly 17 cents straight in February, as it was addressing extreme overbought conditions with a correction of about 600 points, only to resume its uptrend thereafter. May closed just 105 points shy of its highest close of 83.29 cents (intra-day high of 84.60 cents), while July finished only 38 points below its highest close of 83.42 cents (intra-day high of 84.00 cents).
The market is on its way to challenge these recent highs and it does so on a stronger footing than the previous time around, both from a fundamental and from a technical point of view. We are sensing a shift in the way mills are approaching this market, from being lackadaisical to having a sense of urgency. Many mills have so far believed that this run up was just another flash in the pan and that the next opportunity to buy or fix it much cheaper would be just around the corner. The sharp increase in on-call sales over the last few weeks bears witness to this attitude. Even though time is starting to run short, with only a little over three months left until First Notice Day of July, unfixed on-call sales remain unusually high at 3.7 million bales for just May and July and 6.9 million bales overall. Mills have been kicking the can down the road for most of the season and are now approaching a wall. Some buyers are starting to feel uneasy about this prospect and have been raising their fixations level, which in turn is providing the market with a strong layer of support.
From a technical point of view, the recent pullback managed to relieve overbought conditions without hurting the longer-term uptrend, which still remains in force. The reason why we haven't seen more spec long liquidation during the recent correction has probably to do with the level at which specs are placing their sell stops. In a market that shoots up nearly 17 cents in a matter of weeks, spec longs will give the market a lot more leeway before pulling the plug. We guess that the market would have encountered an increasing number of sell stops below 78 cents, but since it stopped short of that level we didn't see much long liquidation at all. On the other hand, newly established spec shorts were probably just trying to scalp a few cents in an overbought market and were therefore keeping their stops tight, with many of them getting triggered this week.
Export sales report added another building block to an already bullish foundation, as a combined 325'400 running bales of Upland and Pima cotton found a home for nearby and forward shipments. Total commitments for the current marketing year now total 10.0 million statistical bales, whereof 6.2 million bales have so far been exported. In addition to that there are commitments of 0.5 million bales for August onwards shipment, many of which will be supplied from existing stocks as well.
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Plexus Cotton Limited