Cotton Traders Analysis
by Jurgens H. Bauer

Cotton Traders Analysis Archives

April 17, 2006

NY Cotton prices were anticipated to open somewhat higher this morning in sympathy with strength seen in other markets in the commodity complex. In addition, what with prices close to their lowest levels for the last seven months it would only seem practical to have experienced some cash market business generated over the weekend. As a result, although initially looking unchanged, late buying emerged during the pre-opening to spur prices to open higher. Prices came in about 30 higher and continued to receive buying interest on the re-opening, which permitted May to establish an early high price of 5305. However, once this early push higher failed to continue and push prices above short term moving averages, buying seemed to dry up and selling took over. Then the focus returned to the spreads.

Trading in the May/July spread began this morning around 155, traded in to 149/150 (likely helped by the early strength in prices), then buyers became more aggressive and took precedence helping differences widen as prices in May backed off. Differences changed hands at 170, quickly followed by 182…and back briefly to 170. Locals trading this spread became nervous. Just when it seemed as if locals were convinced that the differences in the May/July would narrow, (now that the majority of positions had been thought to have been rolled), it widened back out. In fact it went out to 188 with over 8,000 contracts thought to have changed hands. Additional spec buying materialized and this wasn’t the only spread to receive such attention.

The May/December and July/December’s also widened out big today. The key element in these spreads seems to be the desire to get long December. These spreads have already widened considerably, but moved out on volume today. The buying appeared to be new positions, which can be confirmed in looking at open interest figures in the morning. The basic reasoning seems oriented upon the continuing threat of weather problems facing growers in Texas and California. As a result good action in these spreads caused May/December to widen out to 640 and July/December to reach 440.

Tomorrow it is possible to see a shot at searching for buy stops protecting weaker longs, but to do so July needs to get above 5500 and May above 5350. More than likely, we’ll continue to try and build a base from which sufficient momentum can be found.

Allow me to apologize to those who regularly receive my comments via email. I experienced difficulty in attaching the correct file on Thursday. It took a few tries, but I did finally manage to get things straight. Hopefully, you enjoyed my comments regarding the impact of funds on cotton futures. If you have any issue that you’d like to see addressed, please do not hesitate to provide suggestions. 

As mentioned in that installment Thursday’s volume was comprised mainly of spread activity and in particular the May/July spread. May lost a considerable number of contracts from Thursday’s action. Much of it due to the rolling of positions, but also some due to the expiration of the May options. It lost another bunch today Next Monday, the 24^th will is First Notice Day for the May contract, so don’t be surprised if May loses another 7,500 from today’s action.

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