Bloomberg ran a survey of 85 traders and found that the 85 thought commodity markets were priced incorrectly 27% of the time. 270 traders were contacted for this survey, but only 85 ventured a guess. The question was: “How many times out of 100 instances do you estimate the assessed benchmark price for the main commodity you trade is unrepresentative of the true level?” This is an odd thing to ask a trader, as our rote answer would be that all commodities at any given time are priced exactly fair, 100% of the time. The fact that say cotton closes at 85.00 one day and 83.00 the next is reasonable, completely fair, expected, and downright normal. A trader makes his way in the world by projecting the price in the future, so at any time he can buy or sell that day’s price and hope he is proven right down the road. Margin calls are the hazards and speed bumps along this path, which we accept as the big negative in this business. This quirky survey came about due to government regulators being convinced that many markets are really not priced correctly, and that they can fix that. Lining up to “fix things” are such do-gooders as The International Org. of Securities Commission, The European Commission, and the US FTC. Regulators say that they are not convinced of the “integrity” of commodity prices, and are promising probes to study price discovery. We’d be very curious to see how these probes work out, as our own trading often leads to disaster, blow-outs and margin calls. Perhaps the FTC can soon tell us just what the “fair” price of cotton should be, and relieve us of this misery.
The June rally took about 2 weeks and came back down 80% in 6 days. The Aug rally took 2 weeks and collapsed in 3 days, before drifting lower. The Oct rally took either 2 weeks, or 4 weeks, depending on the start point. It also collapsed in 3 days. Nothing like repeats and regularity in this market. These rallies have come mainly due to an almost empty pipeline, which is beginning to get the first substantial numbers in a late harvest. 20kb showed up for certification, and there will be more. There will be also more carry being forced into spreads, as cotton begins to be made available. This market is groping for a little demand, and it may take something around 8000-8200 to get that…………One more thing: the Yellen appointment is disgusting. We would have preferred Larry the Cable Guy, or maybe the left tackle on the Baltimore Ravens. Anybody with a little backbone and pride in our currency.
If we had begun selling options on a 10c price swing in early Feb we could have made our year. Most of the price action has been contained between 8200 to 8900, with brief spikes to 9400 and 7900. Lower support at 8200 looks to be tested soon, and there are some sell stops building there. A trend line crosses at 8305, near today’s low. Moving averages have been worthless and useless in this sideways environment, but if one is looking for a place to sell, the 200 day is at 8468, rising about 4 ticks/day.