Cotton Traders Analysis
by Jurgens H. Bauer

Cotton Traders Analysis Archives

March 16, 2006

“Disappointing performance, especially given superior export numbers. Cotton only manages an early test of resistance, then closes soft.”

Export figures released this morning surpassed expectations and led to early strength, but when unable to push through resistance, prices backed off. Analysts had been estimating sales at 200,000-300,000 RB and exports at 400,000 RB. The USDA figures however showed sales of 441,300 Running Bales and shipments of 415,700 RB. Both were well above what was expected and contributed to this morning’s early strength. The primary buyers were China (271,400 RB), Turkey (57,900 RB), Mexico (22,600 RB), Indonesia (16,900 RB), Hong Kong (11,700 RB), and Taiwan (11,200 RB).

For some this information should serve to verify that strong cash business occurs with May near 5400. For many, these USDA figures were hoped to give impetus for higher prices and a more certain move away from 5400 support. In fact, the gap above in May, between 5615 and 5655 seemed a likely target. The market however, found commercial selling above 5500 which was sufficient to take the wind out of buyer’s sails. The result was that May reached back to test unchanged and then 5450.

Once that area held, a minor short covering rally developed, but that too lost steam. So, when May futures proved unable to return above 5478-5480, much less re-test the earlier highs, values chipped away at 5450, eventually succeeding on the close. Tonight’s close, although only down slightly from yesterday, should put prices again on the defensive, with the market still seeming as if it is searching for price direction.

Some parts of Texas are expected to see scattered light showers Saturday, with mostly a few light showers in the northern areas Sunday and Monday. Rains and showers are expected on Sunday and Monday in the Mississippi Delta region. But that’s nothing new.

The ever popular May (K) / July (N) spread narrowed, with resistance now obvious at 134. Volume was lower in that spread and in others with K/Z offered at 425 and N/Z 290-300. Options volume seemed higher due to locals performing book squaring with one another, but the featured trade was the purchase of perhaps as many as 500 N 59 calls. Another significant transaction was 250 K 52/55 calls spreads that went for 203 points. Other trades tended to be friendly to K and somewhat negative on July. In December, 100 Z 65/75 call spreads getting bought for 160. Another 200 of the same went delta neutral.

May Support: (5449): 5410, 5380-5365, 5325-5300 and 5280-5265.

May Resistance: (5449): 5470-5480, 5510, 5545-5570, 5605-5615, 5635-5645, 5732-5750, 5810, and 5860.

Gap above: may be a target, between 5615-5655.

*Open Interest and volume figures are for the previous day’s trading, and reported this morning. The exchange releases that information around 10AM EST.

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Our comment:

“Disappointing performance, especially given superior export numbers. Cotton only manages an early test of resistance, then closes soft.”

It indicates that cotton will move lower in the next a few days.