“Bulimia, Or Bull Market?”
The Fed’s extraordinary reactionary rate cut may be out of prudence, or it may be out of fear. Its scares me to think that the guy in charge would be apt to do something out of fear, but then again maybe he knows something that we don’t. And that’s scary! Regardless, the equity market rally held again today and that was all it took to stimulate interest in cotton and the grains. More importantly, the selling that was thought to be waiting in the wings wasn’t. That left a vacuum above.
So now the market is torn between lower acreage and the lack of demand when the US economy goes into a full recession. Demand is weak and Exports come out in the morning and are expected to be around 200K for both shipments and sales.
I look for a more composed market with a range to be established in March, which I still doubt has any possibility of going over 7300 and will likely hit resistance between 6900 and 7000. As long as it holds the 50 day moving average and grains and the stock markets hold then things should calm and option volatility will drop. The March 68 straddle began the day at 270, compare that to last month.
Demand is weak and yet with nobody planting cotton when they have viable alternatives, the best trade I can see long term is to use weakness to sell the Dec puts underneath. Hey, selling puts does obligate you to a long position at that strike price, but you keep the premium and I’m not really adverse to having someone hold a gun to my head and tell me that I have to own Dec cotton at 6600. Hey, isn’t that the average price over the last two years? More aggressive types might use the proceeds to acquire upside calls. In other words establishing a bull fence, or collar.
It held where it needed to hold and that’s a good thing. But as I have said repeatedly, I am not bullish on March, but I can build a strong fundamental argument for wanting to be long the back. “Why plant cotton if you can plant something else that requires less attention and costs less money?”
And as I said yesterday, “Crazy as that may seem, I’ve been around a long time and I’ve seen some wild stuff in those 25+ years. If the equity markets stabilize and continue to recover, (the key will be the grains), its possible that cotton prices could rebound.” They did!
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El equipo de Brokers de Futuros USA
Fuente: MF Global
©2007 Jurgens Bauer & Associates all rights reserved.
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