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Cotton futures sales strong amid strong fundamental demand

18
Sep '08
We are now in the middle of a financial meltdown in this third quarter which is similar to the commodity rally from the first quarter of the year. They both went wildly out of control based on fear and speculation. However, commodities should benefit in the short term as we continue to see a flight away from the uncertainty that continues to plague the economy and financial sector.

The beat up commodity sector had a nice bounce today as gold rose over 11% and was the biggest single day rally in history. The dollar paid the price as oil bounced off the lows and grains also made a strong correction. Volume was 20,000 futures and 15,000 options, and cotton is starting to show some buy signs which may carry over going forward.

The speculation which lead to such huge disparities in soft commodities in March is playing a similar factor in the oversold situation hitting the financial institutions. Credit risk downgrades and bearish speculation is combining to create panic selling which has been driving down bank stock prices as much as 20-40% in one day.

The Fed is doing a poor job in picking and choosing how to shore up the confidence and stop the bleeding and this looks like it may have further to go down. This unwinding of the equity markets should keep fueling a bounce in commodities which have been falling for almost the entire third quarter. We lost a large volume of cert cotton in Galveston and had a large decert today of 60k bales. Sales have been strong and the fundamentals are tightening and technicals are starting to catch up.

We finally had a good bounce today as the commodity sector was green across the board and may have finally found a bottom since the freefall began in July. RSI is at 27 and we are finding good demand at the 60 cent level in Z'08. This will depend on outside markets, but the current financial crisis should pump money into the commodity sector.

The weak economic conditions are hitting Asia as well as Europe and there does not appear to be an end short term. Need to see how the global markets react overnight, but with commodity prices coming down 40% off the highs, we are getting back to better fundamental demand.

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