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Cotton market report strong session Monday

10
Jul '07
Another strong session on NY Monday even though there was a lack of fundamental news to trade on today. The majority of activities revolved around spec and fund buying following through Friday's strong close and positive technical performance.

Market was initially called to open around 80 higher and found good support in this area while the grain markets were seeing weaker prices.

The afternoon session quickly pushed prices up to break the 66 and 67 cents levels basis Z7 hitting a few stops along the way, and created today's high at 6730, setting a new 3 year high. Z7 contract finally settled only 200 points higher at 6663 after almost going up the limit during the session.

Volume was descent for the futures with 16,158 contracts traded on the floor and 19,444 contracts traded electronically, but the options were very impressive with a total estimated volume close to 65,000 contracts: 19,000 calls, 46,000 puts.

This mainly represented protection being taken by the very large trade short position that continues to feed on itself as the market goes higher.

We are expecting a higher spec/hedge position tomorrow as the specs and funds continue to drive the market higher finding less and less resistance as most all of the old crop cotton is hedged and new crop is several months down the road.

Technically the market has broken out of the three year trading range and it is unclear where a short term top may be found. Fundamentally, it will be very difficult to find demand at these levels except for those who have no choice. This is mainly driven by the current tightness between crops, and we will have to wait until the specs finally run out of ammunition.

However, there are plenty of gaps that have been made on this 15 cent rally and the RSI is showing almost 84 today which is way overbought. This market is due for a correction, but after today's rally and a new 3-year high, we will probably have to wait a bit longer.

Click here to view graphical presentation:

ECOM USA Inc


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