Cotton prices were subject to the fluctuations that most of the NY soft markets, (cocoa, coffee, …) experienced. Now if you wish to attribute cottons movement to the beans that’s ok, because it’s true. The Cotton price does seem like a derivative of the soybean price and has for quite some time now. However, the bottom line is this… so much money is finding its way into commodities that it has changed the way things have operated in a traditional sense. Get used to it. Also, get used to volatility increase as we are experiencing.
Since I have a meeting tonight to complete further work on my website the next few paragraphs are going to be the same for each of my market comments.
I have another theory as to why cocoa, cotton and coffee all recovered from early weakness, almost as if in unison. I believe that margin calls generated by the increase in margin requirements on wheat had a spill over effect in other commodity markets. In fact that impact may present itself again over the next day or two, but not to the degree that I believe it did in today’s trading.
Now what I mean is that margin calls in one market can impact another is this. Traders, be they fund managers, Pool Operators, CTA’s, or what have you, may have found themselves needing to fund positions and as a result may have decided to eliminate profitable positions in other markets in order to do so. While this may seem unusual to you, it shouldn’t be. You may remember how when large moves in one market occur, they sometimes cause a ripple effect in other, seemingly unrelated market. Remember we are referring to commodity markets here and many traders trade more than one market, they trade a basket of different commodities to diversify. So, when faced with this type of situation it makes sense to liquidate profitable positions elsewhere when they are available to fund a position. I’ve seen traders do it all the time. Maybe you have even done it yourself.
So my theory is that this morning some of the early weakness we saw in the soft markets could have been partly due from positions being taken off in an effort to free up funds. By getting out of some longs in the soft markets, traders could use that money to shore up margins elsewhere.
Since obvious profitable positions in the soft markets have been provided mainly from long positions, my theory holds that longs were liquidated and that once that selling subsided then a vacuum of sorts existed above these markets. This weakness in prices, caused by the wave of selling, first provided buyers seeking to add to longs with an ideal opportunity. Then, since there was less resistance overhead it allowed prices to be greatly influenced by this buying, which caused prices to rise.
Yes, it is only a theory, and one that might be hard to prove since open interest simply changed from one hand into another, but it also is worth pointing out that this may have also moved positions from weaker hands into stronger hands. If I’m right then we may see similar opportunities should additional selective margin increases come about.
BTW, I saw results of a recent survey that was performed in which respondents, (money managers and such), were to suggest weighting of portfolios. The averages were then combined to in effect provide a suitable mix for an investment portfolio. To my surprise the averages suggested an “investment” in commodities of 11% by the respondents. An “investment,” there is that word again. Time was when I first got involved in commodities, (way back in 1980), you never heard that word when speaking of the commodity markets. Sure Hedgers used the markets for prudent things like price discovery and offsetting risk of ownership on positions they needed to take in their underlying businesses, but you never heard investment, instead you heard the word, speculation.
Si quiere más información, por favor contáctenos,
Maria Aranda
El equipo de Brokers de Futuros USA
Email: [email protected]
TEL: 312-261-7395
Fuente: MF Global
©2007 Jurgens Bauer & Associates all rights reserved.
Jurgens Bauer
DISCLAIMER
La operación de futuros y opciones involucra riesgos de pérdida sustanciales, por lo que no es conveniente para todos los inversionistas. La información y opiniones contenidas en esta publicación, no constituyen, ni deben ser interpretadas para constituir una oferta de venta o la solicitud de compra de algún producto. La información objetiva incluida en este reporte ha sido obtenida de fuentes consideradas como confiables, aunque no esta garantizada en cuanto a su exactitud, ni tampoco en lo que respecta a su completo significado. No se asume responsabilidad con relación a ninguna declaración, así como en lo concerniente a cualquier opinión expresada aquí incluida. La confiabilidad relativa a la información en este reporte es solamente bajo riesgo del lector. Todos los comentarios están basados en opiniones.
Comentario de Algodón
Por: Jurgens Bauer
02/29/08
Cotton prices were subject to the fluctuations that most of the NY soft markets, (cocoa, coffee, …) experienced. Now if you wish to attribute cottons movement to the beans that’s ok, because it’s true. The Cotton price does seem like a derivative of the soybean price and has for quite some time now. However, the bottom line is this… so much money is finding its way into commodities that it has changed the way things have operated in a traditional sense. Get used to it. Also, get used to volatility increase as we are experiencing.
Since I have a meeting tonight to complete further work on my website the next few paragraphs are going to be the same for each of my market comments.
I have another theory as to why cocoa, cotton and coffee all recovered from early weakness, almost as if in unison. I believe that margin calls generated by the increase in margin requirements on wheat had a spill over effect in other commodity markets. In fact that impact may present itself again over the next day or two, but not to the degree that I believe it did in today’s trading.
Now what I mean is that margin calls in one market can impact another is this. Traders, be they fund managers, Pool Operators, CTA’s, or what have you, may have found themselves needing to fund positions and as a result may have decided to eliminate profitable positions in other markets in order to do so. While this may seem unusual to you, it shouldn’t be. You may remember how when large moves in one market occur, they sometimes cause a ripple effect in other, seemingly unrelated market. Remember we are referring to commodity markets here and many traders trade more than one market, they trade a basket of different commodities to diversify. So, when faced with this type of situation it makes sense to liquidate profitable positions elsewhere when they are available to fund a position. I’ve seen traders do it all the time. Maybe you have even done it yourself.
So my theory is that this morning some of the early weakness we saw in the soft markets could have been partly due from positions being taken off in an effort to free up funds. By getting out of some longs in the soft markets, traders could use that money to shore up margins elsewhere.
Since obvious profitable positions in the soft markets have been provided mainly from long positions, my theory holds that longs were liquidated and that once that selling subsided then a vacuum of sorts existed above these markets. This weakness in prices, caused by the wave of selling, first provided buyers seeking to add to longs with an ideal opportunity. Then, since there was less resistance overhead it allowed prices to be greatly influenced by this buying, which caused prices to rise.
Yes, it is only a theory, and one that might be hard to prove since open interest simply changed from one hand into another, but it also is worth pointing out that this may have also moved positions from weaker hands into stronger hands. If I’m right then we may see similar opportunities should additional selective margin increases come about.
BTW, I saw results of a recent survey that was performed in which respondents, (money managers and such), were to suggest weighting of portfolios. The averages were then combined to in effect provide a suitable mix for an investment portfolio. To my surprise the averages suggested an “investment” in commodities of 11% by the respondents. An “investment,” there is that word again. Time was when I first got involved in commodities, (way back in 1980), you never heard that word when speaking of the commodity markets. Sure Hedgers used the markets for prudent things like price discovery and offsetting risk of ownership on positions they needed to take in their underlying businesses, but you never heard investment, instead you heard the word, speculation.
Si quiere más información, por favor contáctenos,
Maria Aranda
El equipo de Brokers de Futuros USA
Email: [email protected]
TEL: 312-261-7395
Fuente: MF Global
©2007 Jurgens Bauer & Associates all rights reserved.
Jurgens Bauer
DISCLAIMER
La operación de futuros y opciones involucra riesgos de pérdida sustanciales, por lo que no es conveniente para todos los inversionistas. La información y opiniones contenidas en esta publicación, no constituyen, ni deben ser interpretadas para constituir una oferta de venta o la solicitud de compra de algún producto. La información objetiva incluida en este reporte ha sido obtenida de fuentes consideradas como confiables, aunque no esta garantizada en cuanto a su exactitud, ni tampoco en lo que respecta a su completo significado. No se asume responsabilidad con relación a ninguna declaración, así como en lo concerniente a cualquier opinión expresada aquí incluida. La confiabilidad relativa a la información en este reporte es solamente bajo riesgo del lector. Todos los comentarios están basados en opiniones.
