I’m a Long Term Bull on Cotton, but is Something up?
Cotton prices moved higher in sympathy with the stock market it seemed as when the Dow recovered, so did cotton values. That delivery is upon us has had me thinking bearish on the front of the market, and in hopes that any press downward would create a better buying opportunity to get long Dec in a big way. (I still caution that a price break down is possible if grains lead the move in that direction or if Dec takes out 73.50). However, while the bulk of the day on the floor seemed quiet, with options surprisingly silent for much of the day, the last half hour and in particular the close saw volume double.
There were some Dec three ways and then some size was bought in the July (N) 82 calls (1,000), then a large amount (5,000) of the Dec 75/80 call spreads got bought for 230. Now while that trade was accomplished at delta neutral, it was done so late in the session that it makes you think that something is up.
Look, I don’t know abut what to expect for this March delivery, and with the futures pits scheduled to close at months end it becoming more difficult to get a handle on who is doing what these days. Typically deliveries tend to be bearish events, but what I can tell you is that in relation to the grain markets cotton hasn’t really done anything yet. I think it will though and in a big way. Is that time coming sooner than later?
Going back to the changes in the market place, the participation by funds is huge and it’s not going away anytime soon. If anything, I think it will only get bigger, (just look at open interest levels). Demand for cotton may not be rising as fast as for other commodities, but the play in cotton has always focused upon the potential effects of ethanol and the pending acreage competition. Yet, cotton prices still haven’t made the type of price move so many think inevitable. I too think that cotton prices are headed up and have been trying to be patient.
In my view, the developing world (China and India) will need to tap into the US as a source eventually, (they’ve done a good job of delaying and using us only as a source of last resort), but I think that will change. Therefore, I think you must be long some cotton and I suggest that it be in the December contract. OK, maybe July, but regardless, it feels like something’s up. Could it be that demand is going to raise its head? I don’t know, but I will say that if December is able to blow through 8000 this market will be off to the races.
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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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