Deustche Bank Blowdown
Every now and then rumors pop up about some big forced liquidation, following a large move one way or the other. This time its Deutsche Bank, supposedly blowing out of size cotton contracts. First glance, this doesn’t look right, but then when one considers all of those ETFs this bank created for ag markets, its makes sense. We often look at DB indexes for corn, ag, cotton, etc., to get an idea of overall performance, and it is likely that this bank was holding a few too many longs when its meltdown began. Anyway, thats the rumor and we’re sticking to it – without much proof.
The survey for Thursday’s report came out, and no surprise VB was highest in all categories; production, exports, and end stocks. The lowest production is 21.5 Mb, and the lowest end stocks is 6.1 Mb, compared to our figures of 22.3 Mb and 6.95 Mb. We were highball for world use of 126.0 Mb, and 2nd production at 127.5 Mb. And end stocks at 78 flat. World end stocks were very tight, high/low from 78.5/76.5.
Other than the DB liquidation, the only other news looked sort of bullish. Indian weather shows the monsoon is still holding from the west and nw provinces, where most of India’s cotton is grown. Gujarat lacks rain in its west, Rajasthan in its north, and the Punjab. Our guess is that 40% of India’s crop lacks sufficient rain. If there is a weather rally in July, it will come out of India. Pakistan is also dry, depending mostly on irrigated water that is running very low. As for trading, we opined a month ago that cotton would be a 68c/62c item till more was known, and we stand by that.
The plunge through major support at 6500 did severe damage to the chart. The move up from the 6/10 low occurred in 3 waves, so it was definitely corrective. This move down “looks” like the final 5th, but no idea where it ends. The July expired today, and there is a seasonal low due on avg date 7/17.
As always, please use protective buy and sell stops when trading futures and options.
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