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Cotton market Tues session shows weak trend

Jul '07
Tuesday session was expected to open weaker under pressure to consolidate recent gains. It was also expected to be a quiet trading session due to the upcoming 4th of July holiday. Estimated volume was light with 4,685 contracts traded on the floor and 8,601 contracts traded electronically.

Initially prices were called around 25 lower on the open supported by lower grains prices. Market then firmed up around mid session driven by electronic buying. Bearish option strategies in the late session forced the Z7 to fall and closed around mid range.

This morning's spec hedge report was of no surprise, with an increase in the net long, the percentage as well as the open interest.

For the week to July 3 spec longs were increased by 2,936 contracts, while the shorts were decreased by 596 contracts. Actual net long contracts are now 58,644 and net position is 28.7% long.

Cotton prices continue to go higher in China but in a slower pace this week. Overnight Zhengzhou Futures market saw RMB30-40 higher per metric ton across the board.

It appears that the news of national reserve rotation has been well digested by the market in a steady upward trend since May 14th. But cotton mills are more willing to sell, which will likely lead to shorter cotton supply or higher cotton prices in China.

Technically, the market followed on yesterday's inside range trading. Early session consolidation set the market low at 6310 on the open outcry, but still well above the gap set by Friday June 29's session. Momentum wise it feels overbought even though the RSI at 76.63 is still beneath the 80 reading of overbought.

Moving averages remain strong and supportive at the moment, setting 9 day average at 6203. The 50 day average at 5674 should continue to chase prices up.

Click here to view graphical presentation:


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