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Unprecedented rise in local Chinese cotton prices last night

Jun '07
A green day across the board as grains, energy and the U.S. stock market all rallied and for once they pulled cotton up with them to new 2 month highs. We are now 650 pts off the lows in Dec and 550 pts for the N'07.

Another heavy day of rolling as volume in futures was estimated at almost 58,000 contracts and 10,000 in combined options with July open interest at 61,000.

After reviewing the clearing this morning it looks like the 3,500 Z'07 70 calls bot yesterday were spec related as well as selling V'07 54 puts. There is certainly good spec buying in the market as buy stops were hit above the strong resistance at 52.20 and eventually went to a high of 52.65.

This will be the next level of resistance as the market continues to hold the technical uptrend. A few factors contributed to the bounce today as the market looks for excuses to go higher.

The stock market benefited from a better than expected increase in retail sales which also showed a 2.7% increase in the clothing sector alone.

There was also an unprecedented rise in local Chinese cotton prices last night as the index rose 140 points representing a 2.5% increase from recent values.

We tend to see a tightness in between crops as many mills may be even more concerned looking at the forward price levels in NY and want to try and cover nearby against N'07.

This explains the higher demand for consignment stocks as well, but this off take will slow down considerably after offers move over to V'07 for Sep/Oct shipment with October today breaking 56.00.

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