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Ramadan & low open interest sends cotton in to a tailspin

16
Sep '08
Cotton takes another hit as we closed on the lows near limit down. Oil started the weakness in commodities as it broke below 100 dollars and looks like its on its way to 80 or lower.

Then the bad news for financials started to snowball as the U.S. government refused to bail out Lehman Brothers and Bank of America took over Merrill Lynch which sent stocks sliding to the biggest single day loss since 9/11/01. Volume was above average with 28,000 futures and 27,000 options as cotton specs look like they are getting shorter.

We probably have more bad news to come and the FED will have a very important decision tomorrow as they try to inject liquidity into the market so we can weather this storm. The consensus is they will cut rates tomorrow by at least 50 points in order to prop up the struggling financial sector.

Demand in cotton is very limited as we approach the big Ramadan holiday starting on the 27th of September. Mills have been scale down hand to mouth buyers and the crops do not have any major problems so the next several weeks could see more testing of the downside.

We broke the lows today as there seems to be no bottom in sight short term. We are getting some good fundamental support, but the technicals are still negative. Considering the low open interest in cotton and the holiday mood from Ramadan, cotton is in a tailspin and will need some good sales or spec support in order to rebound.

We continue to test the lows and it is hard to say where the bottom may be, but it feels like it is close. This will depend on outside markets, but the current financial crisis is forcing banks to liquidate commodity positions which will lead to more downside under the weak economic conditions worldwide.

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