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NY cotton races higher as funds continue to buy

NEW YORK: Sustained fund buying and a lack of aggressive trade selling pushed NYCE cotton futures on Friday to close at their highest level in just over two months, traders and brokers said.

"This is a classic turnaround from the funds -- going from short to long and maybe even further and building a long position," John Flanagan, president of cotton brokers Flanagan Trading Corp. in North Carolina said.

March cotton rose 1.88 cents, or 3.6 percent on the day to close at 53.96 cents a lb. Trading reached an intraday high of 54.04, with a low of 51.90. May gained 1.73 to 55.09 cents, whilst back months increased by 0.95-1.85 cents.

Cotton prices saw choppy trading early on, with hedge and trade selling around the 52.80 area, brokers said.

"We moved through some key resistance levels at 52.65 and 53.30 and those two events sparked a massive final liquidation of the short position of the funds," one Tennessee-based broker said.

Brokers and traders said that large speculators would more than likely be shown to have reversed their net short position, in Tuesday's spec/hedge report.

"I think they've moved themselves to about an eight to 10 percent long position in one fell swoop," the broker said.

Funds have been reducing their short position in the market over the past few sessions. The last speculator/hedge report showed them holding a net short postion of 8.2 percent as of Dec 30.

Traders and brokers said that Friday's rise was not linked to the US Department of Agriculture's preliminary estimates for the 2000/01 crop. "Those had all been pretty much thought and heard. What they put out was not all that friendly," one broker said.

The USDA pegged US cotton production in 2000/01 at 18.0-18.5 million (480-lb) bales, up from a revised 16.9 million bales in 1999/2000.

Successive upward movements in the Cotlook "A" index, which represents the lowest quotations of world cotton, have fuelled this week's rally in US cotton futures.

"The A index is really the catalyst behind this whole movement...you've got a lot of factors in here which are probably changing the general trend of the market," Flanagan said.

Expectations of lower production figures in China were also supportive for futures prices, he added.

Cotton futures prices recently fell to their lowest level in over 10 years, with the spot contract hitting 47.75 cents on daily continuation charts.

Dealers pegged support in March cotton at 51 cents whilst resistance should be found at 54.56, 54.95 then all the way up to 56.75 cents.

The nine-day relative strength index (RSI) of March cotton remained firmly entrenched in overbought territory as it stood at 90 at the close on Friday from 81 at the close on Tuesday.

An RSI reading of 30 or less usually meant the market is oversold while one of 70 or higher is an indication the market is overbought on a short-term basis.

"I still think though that we will have a fall back, which will be sharp and short. If it does go back down, I think you'll find lots of people who weren't buyers, will become quite willing buyers," Flanagan said.

Volume reached an estimated 25,000 lots, against the previous official volume of 10,295 lots.

The NYCE is a subsidiary of the New York Board of Trade.-Reuters