Croker-Rhyne Co., Inc.

Main Page  |   Philosophy  |  Current Recommendations  |  Newsletter Archives
Contact Us

February 7, 2005

Buy Cotton

What Cotton Can Do....

I have always been more concerned with how commodity markets move than why they move (this is not to say I ignore fundamentals)...If I am looking at a market, I want to be sure it has a legitimate possibility of making a sizeable move, which is why much of my research dwells on what markets have done in past years.....and, Cotton Moves.

What follows is a quick study of strictly bull moves in July Cotton going back to 1990. This is not to imply Cotton can only go up this year...In fact, in some of the years listed, there were both bearish and bullish moves....At any rate, I have noted on the charts how large the bull moves have been, how long they have taken to play out, and how much money those moves represented per futures contract.

I have only included the years where there was at least a 10 cent move. I'd summarize what I see here as follows:

1. 10 of the last 15 years had at least a 10 cent ($5000 per futures contract) move.
2. Most of the moves are "relentless". If  it's going, it just tends to go, and go...Decide for yourself when you view the charts.
3. Most of the moves start very quickly, usually jumping 2 to 3 cents in the first week out of the gate.
4. From experience, I can tell you they inevitably begin when "the fundamentals are bearish" (as is the case right now), when everyone is expecting the market to continue lower, or go sideways to nowhere.

Here is a compilation of what you will see on the charts below:
Year    Time Length    Size of move   $'s per one future

2003    1 month              11 cents                     $5,500
2002    7 weeks             14 cents                      $7,000
2000    3 1/2 months     13 cents                      $6,500
1998    2 1/2 months     20 cents                      $10,000
1995    2 months            25 cents                      $12,500
1994    3 1/2 months     19 cents                      $9,500
1993    7 weeks             10 cents                      $5,000
1992    1 month              10 cents                      $5,000
1991    4 months             21 cents                     $10,500
1990    5 months             27 cents                     $13,500

The Cotton contract is for 50,000 pounds of cotton.
Each one cent move therefore equals $500 per futures contract.

rallyjuly2003cotton.gif (7221 bytes)     rallyjuly2002cotton.gif (7663 bytes)

rallyjuly2000cotton.gif (7889 bytes)  rallyjuly1998cotton.gif (8777 bytes)

rallyjuly1995cotton.gif (7479 bytes)  rallyjuly1994cotton.gif (8651 bytes)

rallyjuly1993cotton.gif (8653 bytes)  rallyjuly1992cotton.gif (9018 bytes)

rallyjuly1991cottonpartone.gif (7934 bytes)  rallyjuly1991cottonparttwo.gif (8277 bytes)

rallyjuly1990cotton.gif (6062 bytes)

As I have pointed out in previous newletters, during the past 30 years only 3 July Cotton contracts have expired below where July is trading today, and only slightly so (see chart below). Also during those same 30 years, Cotton has averaged about a 20 cent range between now and expiration....In other words, it does tend to go SOMEWHERE. While I may be wrong and see Cotton go even lower from here, considering all of the bull moves shown above, with prices at these very low levels, I am making the bet Cotton will move, and that the move will be dynamically on the upside....

Here is what July looks like this year.....

2-7-05july05cotton.gif (13063 bytes)

All things considered, I see Cotton at least in the 60's by expiration.

Give me a call if have the liquidity, are willing to take the risk, and think this makes any sense at all. Depending on your objectives, there are a number of ways to go about taking this position.

Bill Rhyne

For more information on this idea, click here to see our Jan. 31st newletter, or here for our Feb. 3rd newsletter.


Main Page   |  Philosophy  |  Current Recommendations  |  Newsletter Archives 
Contact Us