wmeubank@ocp.kcmo.com
IRA EPSTEIN & COMPANY
626 West Jackson, Chicago, Illinois
(November 11, 1997) COTTON: Cotton “fell out of bed” today due to a USDA production estimate that was higher-than-expected (at 18.85 million bales, the fourth- largest crop if harvested as such), and the apparent effects from options-related selling. December 1997 cotton traded much lower today, settling at 69.93 cents down more than 2 cents from last Friday.
Today's low of 69.65 cents is still higher than the 68.20 low made last month. And you'd have to go back to October, 1994 to find greatly lower prices (65.90 cents on October 7, 1994). I believe that some recent bullish fundamental news is being ignored and I also think some of the state-by-state production levels that USDA posted today are too high. Having said that, I also note that the market sentiment seems to be decidedly bearish.
Only time will tell how much lower this market can go. We have the October, 1994 low at 65.90 cents, with Fibonacci support in the 62.25-63.00 cents range based on the monthly chart data. Based on current chart data, a penetration of 72.75 is needed to support a move higher according to my chart analysis.
RECOMMENDATION–With today's move I think we are again in a market where options may give market participants the best opportunity. For those who feel the market will ultimately move higher, consider buying the March 1998 75 Call at 70 points or better (about $350). Risk half the premium (about $175). This call expires on February 13, 1998.
Initial support is around 69.65 cents, and again around 68.20. Initial resistance is around 72.45 cents, then again around 72.85.
Schyler Smith
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