USA : Funds buying activities pushes market trade

Monday ICE was called to open around 10 to 15 points lower. Some bearish options were seen on the open, as some puts were bought, some calls were sold and some call spreads were sold. Market was then traded at the upper side of today’s trading range, pushed by funds buying activities. Trading range was narrow at some 60 points across the board.
Grains were overall trading lower towards the end of the session, but had little effect on the cotton market. To everyone’s amazement, cotton closed up strong today. Traders are apparently waiting for the USDA report to be released this coming Friday. Little changes are expected on the U.S. number, however, market is concerned that acreage will see further reduction in 2008.
Today’s Spec Hedge report gives the market a net long position at 27.10%, up from 25.50% the week before. Open interest was increased by nearly 14,000 contracts last week to 245,500 as of Jan 4th. We are not that far away from the record high open interest of 251,500 as of beginning of November 2007. As specs are increasing their investments in cotton, demand is too weak to move the market.
Technically, we continue the upside trend line but trading sideways in correction of the market. Resistance at 69 cents on March contract is proved to be firm, as today’s market challenged this level at the high but failed to break though.
As no fundamental news is around to trade on and as long as outside commodities markets continue to be strong, cotton might feel the pressure to follow.
We also have to consider the impact of the overall economic situation on the cotton market, since a likely recession is constantly in everyone’s topic. We expect to see market trading range bound for the upcoming sessions in search for direction.