Both Sides Risky Business

agricultural, Charts, Commentary, News, Technical Analysis

Cert stocks were stuck at 325 kb for weeks, and recently have moved lower to 305 kb today. This cotton represents 10% of the carryout, and will definitely be part of the transition into new crop. The quick touch and rebound of the May/July spread at -200 has most likely found a firm receiver(s) for the cert stock, but there is a caveat or two. This spread is a live wire, and the resultant bounce to -85 means this cotton remains in play. The owner before 4/07 may not be the same owner today. Demand for US export has been so strong that merchants seem eager to own certs, and anything near carry is seen as a bargain.

 
A year ago the May contract bottomed on 4/15, then rallied nearly 7c to reach a notice high on 4/25. This years action looks something similar, with a slightly earlier low on 4/10.

 
Cotton continues to go its own way in world fiber markets, as Viscose and blended yarns in China fell 3c/# and 1c/# the first week of April

Varner View

Whoever owned cert stocks at the spread (May/July) low of -200 may well have turned loose when the spread hit -85. That kind of action with only 5 days before notice means more volatility is likely. The obvious is that certs have plenty of value at carry, but become odious when carry is less than a month. We are moving ahead and will trade in back months, leaving May for the merchants. The July/Dec spread has our attention on the bear side, as does Dec.

Technicals

Regards July, this contract moved back above the 55 and 21 day avgs, at 7770 and 7755. The 34 day at 7795 capped todays rally. Resistance above that is via a negative trend line touching highs of 3/07, 3/20, and 4/03. This line crosses today near 7882, and falls 5 ticks/day. Two negative seasonals are approaching, the first calls for bear spreading Jly/Dec on 4/18, and the 2nd is to sell July on 4/23. More on these later.


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