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NY futures continue to advance

06 Jul '07
4 min read

On the weekly chart, the spot month finally managed to break out of the 42 - 58 cents box it has been confined to since the middle of 2004, as July shot through the 58.00 cents ceiling last week and October, which is about to become the spot month on the continuation chart, is now four cents clear of this resistance level.

The same goes for the monthly chart, where the month of June posted the highest close in 3 years. What is even more impressive is that the market mustered all this strength in the face of a weak seasonal trend.

Based on this strong technical performance, we should expect more buying from the speculative sector, be it in the form of additional short-covering (there were still over 5.0 mio bales in outright spec shorts as of last Friday) or be it additional long positions.

We have yet to see more aggressive buying from the hedge fund community, who seems to be a bit gun-shy after receiving so many false breakout signals over the last three years. But we believe that it is just a matter of time until these fund managers allocate more money to the cotton market.

As we have seen repeatedly in commodity markets in recent years, technical moves often precede the action in the cash market and we get the feeling that this is what's happening in the cotton market right now.

After the sharp run-up in New York, the cash market is now slowly but surely catching up. This in turn raises the bar for the many shorts who were hoping for a dip to get out of their position.

Even though a correction would make sense after this steep run-up, there are simply too many eager buyers waiting for a chance to buy this market on a two or three cents break and therefore this dip hasn't materialized, at least not yet.

For this to happen we either need a void of buying or more aggressive short selling, but at this point neither the specs nor the trade have the reason or the ability to sell. We therefore believe that the path of least resistance is up and expect the market to continue to press higher in the near future.

Plexus Cotton Limited

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