FUTURES Drops of 10c-15c for all months

Press, 2 June 1984, Page 24

FUTURES Drops of 10c-15c for all months

Wool futures prices for all traded months weakened 10c to 15c this week, Dr Brent Layton, of the Christchurch firm, John Marshall and Company, Ltd, said yesterday. The price declines, which started on Monday and Tuesday morning, appear to have been initiated by disappointment among some futures traders at the prices realised at the Napier and Dunedin wool sales on Thursday and Friday of last week. Once the first decline started it was fuelled by the triggering of stop-loss orders, and renewed speculator interest attracted by the market’s movement. On Tuesday afternoon, buying interest increased, and prices stabilised until Friday, when they moved down again steadily under strong selling pressure, Dr Layton said. The reason for the second wave of selling was so far unclear as in the last couple of days the tone of inquiry from overseas for wool for forward delivery had finned. Trading volume during the week was considerably higher than it has been for several weeks; open interest increased slightly. ' Mr Peter Corban, of Jordan, Sandman, Smythe, of Auckland, said that as expected, prices weakened this week, with many clients now sitting on profits of 200 per cent. On a heavy volume, prices dropped 10c to 15c from the previous Friday.

The initial selling on Monday came as disillusioned holders of long positions decided to quit the market after the previous Friday’s weak Dunedin sale. The absence of any fresh buyers caused those with bought positions to sell the market 5c below Friday’s levels. This weakness resulted in a settling off of stop-loss orders and this had a snowballing effect, with more and more traders and long positions bailing out as prices fell. Prices finished the week below the previous low made in early April and are presenting a ‘'sell'’ from the charting viewpoint. (In an earlier futures column, Mr Corban advised all conservative traders to wait for a break-out of the consolidation zone before entering the market) The outlook on wool for the rest of the season and early next season looked somewhat bleak, Mr Corban said. Buyers were reporting interest from Japan and China, but it would take a brave trader to open up a sizeable long position at this level. More pessimistic speculators might look to short this market. “Look to short this market with close stop-loss for a target profit of 15c to 20c ($375 to $5OO per $250 contract),” Mr Corban said. The volatility in the market at present, however, made it essential that clients keep in close contact with their advisers. Mr Geoff McDonnell, the futures manager of Mair and Company, Ltd, said the week had been the busiest since midApril with the total contracts traded 150 per cent up on last week. The high volume was due to investors effecting stop-

loss close-outs to minimise losses. There was also profit taking on shorts and opening of new short positions as investors changed their position to fit in with an established downtrend. (“Short" is selling at the presumed market top to take advantage of a down trend in prices.) Prices for August 84 and October 84 showed 5c and 8c drops respectively while the middle months outward dropped 14c to 15c across the board, enabling those investors who went short last week to show profits effectively of up to 65 per cent on their positions over a 10-day period, Mr McDonnell said. “From a technical point of view the drop was to be expected as prices had traded in a narrow range with very little evidence from the physical market to back up such optimism as was expressed in the futures prices a week or so ago,” he said. With a weakening in physicals over the week, futures prices started to drop in sympathy and in anticipation of weaker wool sales at Auckland on June 8 and Wellington on June 15. However, at yesterday’s closing levels buyers seemed to be keener, said Mr McDonnell. Those who had gone long over the last fortnight would be tested by the vagaries of the futures market over the next month if firmly convinced of price rises as the new wool season approached, and they might have to stand the pressure of margin calls. “We feel that the next two or three weeks may find a new bottom and present investors with reasonable opportune time to open long positions,” Mr McDonnell said.