March 12, 2007
Major Reversal in Cotton?
Cotton has closed higher for each of the past 3 weeks. Four weeks ago, I strongly believe Cotton put in a classic high volume reversal. If you have any knowledge whatsoever of the importance of volume in trading, I think the chart following speaks for itself.
I have said it all for the past few years as this market has drifted dead sideways...and only a few of you still have any position at all here...now...when I swear all the signs are in place...All I can say is we have just been through several definitively bearish USDA Supply-Demand reports during the past few months (the most recent on last Friday) and Cotton has NOT gone lower. According to virtually all the opinion I read, there is no reason to immediately expect ANY rally out of the July contract shown below...Exports are slow, farmers are holding too much harvested cotton, crop estimates worldwide seem to be nothing but up...And expectations, at best, are for the July contract to only continue to "trade in a range" (I see that EVERYWHERE).
I think it's a buy. After more than two years saying so, I know I have zero credibility...And I still may be wrong, but I think those brave (stupid) souls who buy this market NOW, will, as they say, "make a killing"...Since the January 31st close, July cotton has had a 3.75 cent range. As I have pointed out repeatedly, for the past 30 years, between January 31st and expiration, this contract has averaged a 20 cent range...In other words, it's probably going to do something fairly big, and I sure as hell don't think it's going to be on the downside.
I've been saying it, and I still believe it....I think there is monster leverage in the July call options. The entire chart below is nothing but a consolidation, and is not at all indicative of cotton when it is truly going somewhere...And it would not surprise me, in the least, to see this contract in mid to upper 70's before it goes off the board.
The last thing I want is to be patted on the back in August with people saying, "You finally got it right. I wish I'd done it one more time."....What I really want is for you to make a lot of money.
Put something on it. This market has made me look stupid...but it is not a stupid idea. Give me a call...