Joined: 17 Jul 2006
|Posted: Thu Dec 14, 2006 9:01 pm Post subject: Cotton Gaining Attention as Specs Buy
|Cotton Gaining Attention as Specs Buy
March (H) 55.18, up 0.84
The 10 day moving average is at 53.77, the 20 day moving average is at 52.96 and the 50 day moving average is at 52.89. Futures volume was estimated at 23,000, with 12,500 calls and 8,100 puts. January options expire tomorrow.
Speculators and fund managers are obviously taking note of the recent improvement in the picture cotton prices have been generating. The charts look good, and as such a flow of buying is coming in seeking to take advantage of what is being viewed as a market poised to move even higher. Now although some of this is clearly new buying, (watch for open interest increases in both futures and options for confirmation), some is also thought to be short covering. Remember Tuesday's release of the Spec/hedge report still showed specs holding a net short position of 6.5%. So, next Tuesday's numbers should be very telling. Perhaps the net position will change sufficiently to become positive.
Regardless, this buying has strengthened prices. March was up 84 points today and closed near its high. This is the highest March futures has been late September. The Trade has been the featured seller and it is thought that their selling is in response to hedging cotton redeemed out of the loan. This situation will likely continue and Trade selling should become increasingly aggressive as the board price is sufficiently above the Adjusted World Price, or (AWP).
Crystal Ball: I favor the long side of the cotton market and until the net spec position becomes positive, I'll look for continued gains in an upward grind. Once the spec position changes sufficiently and becomes net long, there could be a set back.
Fundamentals: Nothing new, but this shifting of the specs position carries weight. The chart improvement may be predicting something, but I haven't heard anything, least not yet. Of course there is the competition for acreage, but that story's been around.
Exports are showing signs of improvement, but there is still a long way to go in order to attain the USDA projected levels.
Options volume is growing as positions are being adjusted and new players are getting involved. Volatility levels are 18-18.5% in March, 19.5% in May, 19.75-20% in July and 19-19.25% in December. December is becoming very popular.
If I may be of any assistance to you, please give me a call at 212-748-1388. Jurgens
The Information and opinions contained herein comes from sources believed to be reliable, but certainly not guaranteed as to accuracy or completeness. No responsibility is assumed with respect to any statement, nor with respect to any expression of opinion herein contained. All views are the opinions of the author at the time of writing and are subject to change without notice. No statement should be construed as an offer to buy or sell a commodity. This publication is for information purposes only.
trading floor: 212.748.1388