Cotton Traders Analysis
by Jurgens H. Bauer

Cotton Traders Analysis Archives

March 27, 2006

“The Search for Direction Continues…”

NY Cotton prices opened a little better this morning and again into a tight range. Volume was for the most part muted, yet with some attention given to spreads in K/N and N/Z. A late rally sparked a firm close with May futures leading the way and settling above 5300, near the high of last Thursday. 

Although somewhat higher today, (especially the firm close), cotton prices remain in a bearish trend with not much new to report in terms of price action at least on the day today. The near term outlook for prices remains uncertain as the market searches for direction. The trade has continued to show interest in acquiring positions during the recent weakness and specs have seemed agreeable to the sell side. Therefore, its likely that specs are holding new shorts, (expect tomorrow's spec/hedge numbers to reflect this sentiment) as the net spec number should be close to flat.

The potential does exist for some additional firmness in prices with buy stops from weak shorts likely positioned fairly close above as short term moving averages come into play. However, without new news prices may just be establishing a new range. Regardless, the search for direction continues.

Option volume was subdued with most of the trades taking place early. Featured trades included K 52 calls being bought early, while N 59 calls got sold. The N 56/58 call spread was purchased, as too were a couple hundred of the N 55 puts for between 290-294 points. There were also some N 50 puts bought and 49 puts sold.

The May (K)/ July (N) spread was active and narrowed as prices moved higher. It traded between 154 and 148 and locals seemed to sell the spread late in the day. Commercial interest appeared on both sides in the N/Z spread. 

The downside objective for numerous chartists (5250, basis May) again held over the course of today's trading and may be an area of reasonable support. Prices have certainly experienced significant continued selling by specs, long liquidation and the establishment of new shorts. There has also been additional pressure resulting from the impact of bearish option strategies being transacted as risk management positions have been taken on. There still remain some who seriously question the demand and an eye should be kept upon Certificated stock levels.

May Support: (5225): 5200-5160, 5115-5108.

May Resistance: (5225): 5260-5285, 5340, 5385-5410, 5470-5480, 5510, 5545-5570, 5605-5615, 5635-5645, 5732-5750, 5810, and 5860.

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