Cotton clearly breaks out on the upside and does it without the benefit from outside influences!
Being a bull on cotton hasn’t been as rewarding as it has for wheat bulls. Until now that is! Thursday’s session was an exception. And I think an example of what we are going to experience more frequently as cotton prices receive the benefit of all the work they have done building a solid base from which to garner momentum. Let the games begin!
With Wednesday’s close in Dec above 7850, signaling a test of 8050 likely, that’s precisely what we saw. And by closing above that level makes this thing look hot to trot. Additionally, sources suggest that the USDA will cut cotton acreage estimates further and every producer I’ve spoken with tells me they should. But most of all today’s action suggests that it is the funds that are in control. Spreads are not behaving as they traditionally do. We’ve seen that exemplified in the performance of the March/May for a week now.
March goes into notice after tomorrow’s session. Mills who haven’t covered needs will find themselves in a scramble competing with specs and funds for positions as they did today. Shorts will puke and margin calls may send some lifting hedges. Option volatility should surge. In sum, if you’re not long, you’re wrong…
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Trade idea: Cotton looks very strong, (Regular readers should know I have been bullish on Dec). I am still surprised with the front end of the board, but that being said, here is a trade idea. Sell the K 75 straddle (sell both the put and the call) and collect 575 points. Then buy some downside protection in the May (as I cannot shake my nervousness that a break down could occur, hey stranger things have happened). But make sure you have longs on to not only protect, but benefit from the pending strength. I am long the upside already by owning futures and some calls in Dec, but that is the key, make sure you have long calls, or call spreads on in Dec. or at least in July and have more on than the number of straddles that you sell, say at least 3 times as many.
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El equipo de Brokers de Futuros USA
Fuente: MF Global
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