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Volatile times in cotton market

21
Oct '08

The market gave back a good portion of the correction today as we ran into some profit taking after peaking early in the morning over 9 cents higher than the low set on Thursday at 45.66. We are in very volatile times in cotton which has divorced itself from the outside markets at least for the short term.

Volume was very strong today as the big feature was a further collapsing of the Z/H'9 spread below 300 pts from a high over 550 pts 3 months ago.

Z'08 open interest is still at 100k and we have less than a month now to roll out to H'09 which may have lead to some panic buying in of the Z'08 contract. Futures volume was above average with almost 30k in futures and 10k in options. Spec hedge got shorter last week to 8% as you will see in pdf as open interest keeps falling.

We did see some support under 50 cents today as we may be setting up for a sideways trading range between 49/55 cents.Energy, grains and equities had a nice run today and that may have some delayed support for cotton if we can keep that momentum going. Cert stocks are falling and demand remains strong at these levels so we may be setting up for some long needed consolidation as we move into the 4th quarter.

The U.S. economic picture became a bit brighter this week as the stock markets found some support and this may lead to a commodity consolidation. MACD is starting to turn north for the first time as we have reached heavily oversold signals which are due for a bounce.

Energy and grains were strong today even though the dollar was very firm. There will certainly be plenty of volatility going forward as everyone agrees that we are not out of the woods yet, but we are seeing a small trend to buy dips instead of sell rallies as there is some demand to buy with volatility at all time highs.

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