Thursday’s sideways consolidation is exactly what I had been expecting; and it is good for the market because it helps build a good area of support that we need to push prices higher. Now each time the market dips, there will be an area chart traders will recognize as a good place to buy; and where they can expect the market to hold even when selling pressure is applied.
Today on the pre open, specs wanted 200 contracts and the market was looking 20 to 40 higher. Late in the preopen, selling from a mix of trade and spec sources came in and we opened lower. Locals also added to the pressure on the market as they got short, hoping to get a good selloff by electing trailing stops as the market moved up.
Much to the locals surprise, they were meet with another wave of spec buying that, once again, thwarted their efforts. As locals covered and specs continued to buy, the market quickly recovered and went from 30 lower to 30 higher on the day.
Activity was light the rest of the day, as locals, for the most part, shorted the market near the highs again, as some light trade selling came in at the 5530 to 5540 area. The locals could barely get the market back down to 5505 the rest of the day even though volume was very light.
Going in to the close, locals were lightening up on their shorts as about 300 contracts were wanted on the close. The market finished on the dead high, with some trade resistance right at 5540 satisfied by the spec buying that was wanted on the close. The pit remains on the short side, and I would not be surprised to see a higher open on Friday.
One interesting note, the amount of cotton decertification’s for the period of July 18th through the 24th were reported incorrectly; this has been attributed to an accounting error. During that period, 20,000 bails were reported as decertified from exchange warehouses, when in actuality just over 67,000 bails were decerted during that period. While this is a significant discrepancy, I do not feel that it will influence the market. We have been expecting considerable decerts as we approach the end of the 05-06 marketing year anyway. We have been waiting for merchants to decert cotton to take advantage of the last chance to get step-two payments for exports.
Please remember that Friday’s activity and settlement will be setting us up for Monday, which is the last day of the month, and the monthly fund activity is nothing to be ignored. Right now monthly funds hold about 10,000 to 14,000 longs in the market that they have been rolling forward for some time now, and while I am certain that we need not worry about liquidation from the monthly funds, I am not certain if they will be adding to their positions. My intuition tells me that there may be some good buying on Monday, particularly if we settle above 5526 and more definitely if we were to settle above 5627, these are the 50-, and 100-day moving averages respectively.
Look for:
Support: 5470-5490, 5426-5400, 5380, 5325-5305, 5280, 5210-5188, 5120 and 5080.
Resistance: 5560-5570, 5600-5610, 5650-5670, 5750.
Moving Averages
December
(55.40)
March
(58.25)
9 Day
54.76
57.73
Month
Volatility
18 Day
53.80
56.72
Sept.
23.50%
40 Day
55.25
58.01
Dec.
26.00%
100 Day
56.27
58.78
March
25.00%
Futures
Calls
Puts
May
23.75%
4,000
1,050
900
July
22.50%
PICO-Cotton (212) 748 - 1388 trading floor (212) 742-5284 fax
