NY cotton futures rally sharply last week

28 Jan '13

4 min read

So where do we go from here? We once again have a classical battle between spec longs and trade shorts, and so far the specs are winning! After going from a low of 74.40 to a high of 84.00 cents in just nine sessions, the spot month may be a bit overextended and it would therefore not surprise us to see a pullback towards 80 cents or even slightly below. However, specs are not likely to part with their new long positions anytime soon and the trade is probably going to use pullbacks to get out of some shorts.

Remember, when basis-long positions are sold or mills fix on-call sales, it typically means that futures get bought back at the other end. Since there isn’t really that much grower cotton to be hedged at this stage of the season, the trade as a whole will more likely be a net buyer than a net seller of futures over the coming months. And because specs are also leaning towards the long side, the path of least resistance is up!

Just a few weeks ago most traders felt that the 80-cent level was out of reach, but an ever-increasing trade short position is now providing the fuel for even loftier heights. Today we got a whiff of what can happen when shorts start to panic into covering, and we probably have not seen the last of it just yet.

Plexus Cotton Limited

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