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Another sluggish day in cotton futures market

Mar '07
Another boring day in the cotton futures market. Make that 4 in a row, as range was more or less created in the preopening electronic and the beginning of the open outcry session. For prices to open and close 5-10 points higher on the spot more than sums up the lack of action. There was some further widening out of the spreads, particularly in the old crop / new crop spreads, with the May / Dec managing to widen to the 560 point area by the close.

The May / July continues to be active, trading around 105-110 throughout the session. Options activity was fairly restrictive, though there was a tendency to sell May puts and buy July puts on the most part. One broker was a good buyer of 500 May 55 calls for 25 points.

Options volatility continues to remain weak in the front and stronger in the back months, which suggests an overall large breakout from current levels, but further down the track. Estimated volume was fair at 11,693 lots which includes 3,762 lots on the screen.

Tomorrow spec hedge will be an interesting one. We can assume that with open interest expanding last week—now at a massive 220,715 lots-specs will have added both new longs and new shorts. A spec position of around 6% would not be surprising.

The interesting thing about the recent swelling in open interest is that prices have become less volatile as open interest has risen. We wonder out aloud how long this strange negative correlation can continue.

Cert stocks also continue to swell, with total stock 638,476 bales with 25,376 bales awaiting review. The March delivery attracted a lot of cotton to the board, and with export commitments so slow, we can only anticipate more of the same for the May and July deliveries.

It's hard to really say much about the May contract, aside from the fact that it really doesn't appear to be going anywhere in a hurry. The last 4 sessions have more or less all taken place within a 60 point trading range, and today's was just a continuation of this.

Moving averages are flattening out, though the short term averages are showing a little weakness, with the 9 EMA beneath the 50 day. Momentum is expectedly neutral, with the RSI at 45.96.

Click here to view graphical presentation:


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