November 1, 2005
Cotton is the sort of trade I would make if I were headed off for a year in South America again, where you just buy all the call options you can afford, hit the road and forget about it for six months.
I look at this market, trading in the low 50's, and "envision" it at least 20-25 cents higher by some time next year.
Chartwise, I believe it has spent the last 16 months forming a MAJOR bottom that, in any given week, should explode out of here and make a somewhat non-stop move up through its recent highs, then its contract highs, and then just keep climbing from there...Sentiment and Fundamental Perceptions in this market have just about reached the "no hope" category, to the extent I am hearing, "It's GOT to go down" (to attract any buyers/users)....Although Cotton backed off roughly four cents in the past few weeks, with all the gloom and doom I am hearing, you would think it had just PLUNGED into new all time lows, when in fact it is still exactly in the middle of the range (bottom) it has been in since August of last year.
Yes, there is a big crop out there, but this is no secret. It's "in the market", or more specifically, "in" everybody's head, to the extent they just can't imagine it going up from here, and sure as hell don't want to bet good money on the idea. The thing is, this is the way it is at EVERY bottom I have ever seen....In this business, when nobody else wants it, is when you buy it. This, however, is easy to talk about, but harder to do when it comes to writing that check......But, every bale out there WILL get used, and the mountain of cotton that is being harvested will NOT be a mountain come next July....And I cannot in any way, shape or form imagine the world's appetite for Cotton diminishing...And, some time next year, possibly long before July, the price will probably be a LOT higher....Obviously, this is my opinion, and I may be proven wrong, but every now and then there is a trade I look at and just think, "No Brainer!". Again, I may end up looking like an idiot, but I think this is one of them.
Buy Cotton! I don't care how you do it. Use the Both Sides Strategy, Just Buy Calls, or Buy Futures. This market is a BUY.
I should be covering Gold, Copper, Treasury Bonds and Sugar in the next day or two...
If you want to make this bet (yes, that's what Futures is), Give me a call!!....While Cotton is here, into the recent 4 cent weakness, not after it starts running...