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NY futures rallied credibly since last report on July
04 Aug '06
3 min read
Since falling to a new contract low of 51.20 cents on July 7, December has gained an impressive 595 points. Short covering by speculators has been the driving force behind this rally, while the trade has been a scale up seller.
Even though the chart picture looks very constructive, volume has not been convincing so far, averaging just 11'000 contracts a day since July 7.
Also, in a strong bull market we typically see open interest expand, but that has not happened yet as O.I. increased by just 1'622 contracts over the last four weeks.
A look at the latest spec/hedge report of July 28 reveals that spec shorts covered 0.7 mio bales last week, reducing their exposure to 7.2 mio bales.
Surprisingly, spec longs cut their position as well, going from 9.0 to 8.6 mio bales long, which is not what we would expect to see in a rising market.
The trade on the other hand has increased its stakes on both sides. Trade longs, which include index funds, have increased their holdings by 0.5 mio to 7.6 mio bales, while trade shorts added 0.8 mio bales and now account for 9.0 mio bales.
If we adjust the trade position by taking out an estimated 4.0 mio bales that belong to index funds, we arrive at a futures net short position of around 5.4 mio bales.
With the trade hedged in old crop and with new crop not yet in play, speculators have been able to force the market higher without much resistance.
In a few months from now, when US new crop cotton enters the loan, the current AWP/ Futures spread of nearly 13 cents is likely to invite a lot of trade selling, but at the moment there are just 1.17 mio bales of old crop cotton left in the loan.
Even though the chart picture looks very constructive, volume has not been convincing so far, averaging just 11'000 contracts a day since July 7.
Also, in a strong bull market we typically see open interest expand, but that has not happened yet as O.I. increased by just 1'622 contracts over the last four weeks.
A look at the latest spec/hedge report of July 28 reveals that spec shorts covered 0.7 mio bales last week, reducing their exposure to 7.2 mio bales.
Surprisingly, spec longs cut their position as well, going from 9.0 to 8.6 mio bales long, which is not what we would expect to see in a rising market.
The trade on the other hand has increased its stakes on both sides. Trade longs, which include index funds, have increased their holdings by 0.5 mio to 7.6 mio bales, while trade shorts added 0.8 mio bales and now account for 9.0 mio bales.
If we adjust the trade position by taking out an estimated 4.0 mio bales that belong to index funds, we arrive at a futures net short position of around 5.4 mio bales.
With the trade hedged in old crop and with new crop not yet in play, speculators have been able to force the market higher without much resistance.
In a few months from now, when US new crop cotton enters the loan, the current AWP/ Futures spread of nearly 13 cents is likely to invite a lot of trade selling, but at the moment there are just 1.17 mio bales of old crop cotton left in the loan.
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