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Certified cotton stocks grow to a record 1.14 million bales
18
Apr '08
NY futures came under renewed pressure this week, with July dropping 285 points to close at 75.28 cents, while December lost 209 points to close at 83.31 cents.

The market was initially able to follow through on last week's strong gains and July managed to rally all the way up to 82.23 cents during Wednesday's session before collapsing nearly 700 points over the following 24 hours.

Even though the move from a low of 70.80 cents on April 1st to a high of 82.23 yesterday may have looked impressive on the chart, it all occurred on relatively thin volume and this lack of momentum would sooner or later pose a problem. When outright buying became even more sporadic near Wednesday's highs and selling pressure increased, it did not take much to reverse this trend into a tailspin.

What may have allowed the market to advance with relative ease earlier in the week was the fact that the trade had already spent a lot of its bullets during the initial advance a week ago.

According to the ICE Spec/Hedge report, trade shorts added 1.5 mio bales of new shorts last week, boosting their outright short position to 19.4 mio bales as of last Friday, whereas spec shorts did the opposite and covered 1.3 mio shorts, thereby reducing their outright short exposure to 7.5 mio bales.

On the other side of the ledger, we had trade longs up by 0.7 mio bales, while spec longs reduced their holdings by 0.5 mio bales to 10.4 mio bales.

It has been a while since we saw both spec longs and shorts reduce their respective positions during the same week and the lack of any new spec buying has to be particularly disconcerting to the bulls.

There may have been some distortions of these numbers because of option's expiration and the ongoing May liquidation, but chart traders care little about these things and unless they see an uptrend that is supported by good volume and rising open interest, they generally won't commit to new positions.

Next Thursday marks the beginning of the May notice period and it promises to be one of the more memorable ones in recent history. The certificated stock has been growing to levels never seen before, measuring a record 1.14 mio bales as of this morning, which is about twice as much inventory as two months ago.

But we also have the widest carryings in the market ever at 350 points to July (175 points a month) and 1150 points to December (164 points a month). This means that the board offers a 50-60 point per month reward to anyone willing to become the financier of this large inventory.


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