Market closed slightly higher with the majority of action taking place in the swaps from K'07 forward. The N'07 actually became the most actively traded contract as K'07 open interest fell below July's 78,692 contracts. We still have over 70,000 contracts that need to be rolled between now and April 24th in the K'07.
This may even grow higher after option expiration on Friday with many holders of long K'07 puts in the money. Volume traded was estimated at 35,000 contracts with 16,000 trading electronically and 10,000 in options.
The K'07 will continue to be under pressure through first notice day if a stopper does not appear. This is looking very unlikely due to the quantity of cheap equities available and an official AWP estimated to start Friday the 13th of 42.30 c/lb.
This level is the cheapest we have seen since November'06 and should encourage a large amount of loan cotton to be redeemed as we get closer to the new crop blend for the A index predicted to start in the next 6 weeks.
Options expiration could temporarily hold the market close to 52.00 c/lb. based K'07 as some holders of these short puts would prefer to defend their position. However, after options expire on Friday and if a firm stopper does not appear, the K'07 contract could test or even break the contract lows.
This will set up the future for the N'07 contract to follow in the same path as demand is good at these levels, but certainly mills are buying hand to mouth and will wait to cover July shipments forward until N'07 reaches the low 50's.
A new low, indecisive overall though. Moving averages are both trending lower, with the 9 day now at 52.56 and the 50 day at 53.39. Yesterday's action negates a lot of the previous sideways consolidation work, and we can now expect a real challenge at the contract lows at 51.45.
Momentum quickly turned negative with the RSI now down to 42.84 with some more room to the down side possible.
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.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "UBM China (Shanghai)")
-Ltd..jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Thermore (Far East) Ltd.")
