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Cotton market trades in narrow uneventful range

04
Nov '08
Market traded in a narrow uneventful range with only 17,000 futures and 4,000 options. After breaking through and setting a new contract low on Friday, cotton futures managed a good bounce but sold off on the close. We just cannot get any kind of run in cotton even with a positive day in grains. Energy and metal prices went lower and the dollar was firm so that did not help either.

Demand has slowed down after the strong dollar took off and the equity markets bounced off the lows. The election tomorrow will be much anticipated and should have some kind of positive effect on the markets worldwide. We will have to see all the results of the congress and president before we can say for sure.

However, the momentum at the moment feels positive and we may see some bottom starting to form at these levels. Index funds have been taking profits recently and we could see some squaring of positions ahead of the option expiration and the Goldman roll from Z'08 out to H'09 as the spread is widening back out to 450 today from the lows near 300.

Specs did get longer last week reducing their short position from 8.7% short to 5.4 % short.

Technically we broke out double bottom at 45.20 but did get a good correction today. The other good sign is that cert stocks keep falling and open interest is starting to build back.

RSI is still in the low 30's, and MACD is undecidedly making a double cross. We could see an election bounce in the markets that may spill over into commodities but just have to wait and see. Z'08 seems to be setting up for a weak expiration but maybe we can start to build a more bullish case for the H'09 which will have more positive seasonal factors. Energy and metal prices also need to bounce in order to establish a solid bottom and a weaker dollar would not hurt either.

Ecom USA


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