Interviews
News Flash
NY cotton futures prices finally correct
20 Nov '10
5 min read
The December options expiration resulted in a huge drop in total open interest, from 241'826 to 203'619 lots, as specs and the trade both cut their respective long and short positions. This is typically seen as a negative sign, because it signals a loss of momentum in a prevailing trend. A strong trend needs to be confirmed by high volume and rising open interest!
Contrary to popular belief, speculators have only a relatively small stake in the cotton market at the moment. When this bull market began in late July, specs owned 39.4% of all longs and 42.1% of all shorts, while as of last Friday they had 36.8% of all longs and just 25% of all shorts. In absolute terms specs are around 15'000 contracts more long, while they own 14'000 contracts fewer shorts.
This relatively low spec participation has pros and cons in our opinion. On the one hand it makes the cotton market less vulnerable to potential spec liquidation in reaction to weak outside markets. On the other hand it can lead to exacerbated moves when the trade is in charge and decides to change direction in a less liquid market.
So where do we go from here? After several days of free falling, the market seems to have found both technical and fundamental support. On Wednesday, when the market traded limit down, it closed right on an important uptrend line dating back to early October and it managed to bounce off of it. From a fundamental point of view the A-index vs.
March futures spread stretched all the way out to 30 cents yesterday, making the futures market look undervalued. However, we believe that it will be difficult for NY futures to rally back to the recent highs anytime soon. There is plenty of cotton around at the moment and we first need to see what mills are going to do with it.
Next week we should get a better idea of what cash cotton is really worth when the December contract enters its delivery period. It has been five months since the last 'cash test' and this one promises to be a lively and entertaining affair.
Contrary to popular belief, speculators have only a relatively small stake in the cotton market at the moment. When this bull market began in late July, specs owned 39.4% of all longs and 42.1% of all shorts, while as of last Friday they had 36.8% of all longs and just 25% of all shorts. In absolute terms specs are around 15'000 contracts more long, while they own 14'000 contracts fewer shorts.
This relatively low spec participation has pros and cons in our opinion. On the one hand it makes the cotton market less vulnerable to potential spec liquidation in reaction to weak outside markets. On the other hand it can lead to exacerbated moves when the trade is in charge and decides to change direction in a less liquid market.
So where do we go from here? After several days of free falling, the market seems to have found both technical and fundamental support. On Wednesday, when the market traded limit down, it closed right on an important uptrend line dating back to early October and it managed to bounce off of it. From a fundamental point of view the A-index vs.
March futures spread stretched all the way out to 30 cents yesterday, making the futures market look undervalued. However, we believe that it will be difficult for NY futures to rally back to the recent highs anytime soon. There is plenty of cotton around at the moment and we first need to see what mills are going to do with it.
Next week we should get a better idea of what cash cotton is really worth when the December contract enters its delivery period. It has been five months since the last 'cash test' and this one promises to be a lively and entertaining affair.
Plexus Cotton Limited
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