c. Better Together It's easy to trade cotton when it trades so close to the herd. At 0600 this morn, cotton turned and had a furious rally. As did soy, corn, coffee, copper crude, etc. One goes, they all go. Moves like this solidify the hard fact that Big Money specs and funds control the timing, the power, and direction. The capitulation of the bull the night previous was not as together and in sync, but the "macro boys" have decided there will be a correction of all, for now.
Nothing has changed on balance sheets, but there have been some eye-catching trades in the power markets, those being gold and the 10 Year. The benchmark treasury reached 1.5%, highest rate in a year, and gold broke through major support at 1765. There are many charts floating around showing the inverse correlation between yield and gold, easy to see. Rising rates reflect inflation expectations, plus better business ahead. And that's the strength behind commodities, its the consensus view that world consumers are about to go on a binge.
In just a few hours, May cotton has banged out a hard trading range of 832 points. Thats a rather wide berth, and one can get run over on both sides. The market has definitely made a key peak and reversal, but the balance sheet says cotton will trade at a high level, for an extended period. Whatever one thinks of the Outlook Forum's new crop balance sheet, that will be the benchmark through most of this spring. A 3.8 Mb carryout and ratio of 21% will put a floor below the market, but this all means cotton is now in a new game, one which has two sides, not just one way. We are holding a spec syn short, via May 82 Put/100 Call. Where to exit? We're working on that. As for farmers in new crop, 10% hedged each at 73c, 77c, 81c, 85c, and 89c. 50% in the bag.
The spot high at 93c and active May at +95c are both in that mid 90s area we have mentioned as holding several historical major highs. Is "the" high in place? Don't know, but if this high had occurred in March, it would have put a big reversal in sync with 3 long term timing events. We now have to look at the possibility that a big event in March just may be a low, rather than a high. The move from 4835 to 9295 spot was 4460 points. Halfway back is 7065, and this coincides with a gap in early December. The 38% retrace is 7600, and that seems more likely. Major timing events are due the 2nd, 3rd and last week of Mar, should be a fun month.