After a strong week for all commodities, Monday did not take much of a breather as the overnight activity was friendly across the board. Energy, metals and grains had good support and we locked up the limit in wheat. All of this strength leaked into a lagging cotton market, which is having some trouble finding sellers.
Most of the scale up trade selling has been put on hold after such strong rallies since breaking out of our 6 week sideways trading range. First notice day began with over 5,000 H'08 contracts left to liquidate after Term commodities stopped the majority of cotton with J.P. Morgan the largest issuer.
Volume was strong today with 50,000 futures and 53,000 options as we look to the K'08 setting another record high today. Spec long position reached 28.6% from 25.5% last week as open interest is reaching record highs near 280,000 contracts. Cert stocks are growing quickly and are now approaching 600,000 bales with over 50,000 awaiting review.
With the market at these record levels, NY is one of the most attractive places to sell cotton and this stock should continue to grow as we move closer to K'08 delivery. However, the cotton market is completely saturated by spec buying and divorced its behavior from any fundamental factors. Very hard to say where a top might be found as we are only finding strength in the entire commodity complex.
Technically, we have broken all upside resistance targets and are feeding off bullish commodity sentiment. May locked up the limit as we are now reaching a relative strength index at 76 and into overbought territory. The last time the market saw the spot month trading above 76 cents was in 2004.
May has now rallied 10 cents from the low set only 2 weeks ago. General market mood is bullish on technicals and outside commodities market. We will have to see a pull back in the grains before cotton will have a chance to correct. Demand will certainly slow down in the short term, but fundamentals are no longer in charge.
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