News Flash

Open interest in cotton reaches record levels again

28 Sep '07

2 min read

Preopen trading was pushing cotton near 66.50 which was the resistance level for several days as the market had been moving in a sideways range. After the opening, the market drifted lower to unchanged but could not test the lows near 65.15 which also had been a keep support near the 9-day moving average and the bottom of the upside trend channel.

Eventually, spec and local buying came into the market in a big way which pushed the cotton prices through the resistance @ 66.50 and found buy stops. The volume was above average with 30,000 futures and 27,000 options as the market made new 10 week highs @ 67.40 which has not been seen since mid-July.

Even though the export sales report was below expectations with only 140k sales and 265k shipments, the strong grain prices were the biggest reason cotton continues its technical rally. Wheat, corn and soybeans all put in significant increases as the stock market continued to hold stable to higher levels as well.

There is speculation that with tomorrow being the end of the month as well as the end of the quarter, hedge funds with long commodity positions want to end on a positive note as they mark their profits to market on Friday's close. We should see another good selling opportunity for the trade tomorrow as specs are happy to add to their long positions for the third quarter close.

Technically, the market continues to show overbought signals which keep getting louder the higher we go. Open interest in cotton is reaching record levels again closing in on 230K. Cert stocks are growing quickly with over 500k and close to 50k awaiting review. There is no doubt the specs are close to 30% long at this point which would represent almost 70,000 contracts.

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