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Short term correction expected in cotton futures

26
Sep '08
Overnight ICE opened around 30 points above yesterday's settlement and remained at flat trading pattern during the early morning session. Both electronic and options trading are quiet due to lack of news.

Noticeable trades in the options pit is red Dec 100/121 call spreads buying at 1 to 2 ratio for 10 points, which counted for the majority of today's options trading. Stock market Thursday rallied 200 points on excitement of the government bailout plans.

After a whole week's negotiation, the deal on the bailout plan is getting closer, but debates remain largely as to details of the plan and whether the plan will work as it's supposed to. The pass of the deal is also possibly to give the commodity prices a push.

After last week's big number in the USDA export report, it seems that not enough sales were booked when NYF was trading around the 60 cent level basis Z'08. As the market continued trailing lower, so was mills' expectation. Total upland net sales were 258,800 running bales for the current marketing year. Shipments were lower than last week as well at 222,500 bales.

China was the largest destination with 104,300 bales leaving for the week. Seasonal total shipments are now close to 1.74 million bales upland and pima combined.

Technicals were starting to turn positive and we certainly were due for a bounce after grinding below 60 cents last week. However, we are running into further selling pressures scale up even though there is still 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 nearby. Need to see how the global markets react this week, but with commodity prices bouncing hard on Monday, it looks like we are in for a short term correction in cotton which could try and test resistance at 65 cents.

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