CHART OF THE DAY: The Most Important Phone Call We Got Today...

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Over an hour before today’s open, we got a phone call from a reader.

They wanted to know why the cotton-linked ETN (BAL) was down. We hadn’t looked at the time, but indeed, by 8:00 AM ET, it had already plunged over 10%. What didn’t make sense was that cotton futures were only down a few per cent.

What gave? Well, the cotton futures market had a max limit down level that it hit. The ETN has no such floor, so there’s the potential for it to shoot well beyond what the futures themselves did.

Now as the chart below shows, the rise in cotton has been jaw-dropping.

One thing’s obvious: this incredible bull run has brought in a lot of new people who don’t have much familiarity with how agriculture instruments play, and, frankly, a huge down day is not something they’re used to.

We’re not predicting a burst, but as a sign that we’re in some kind of commodities bubble, it certainly is something to pay attention to.

For more on the decline of soft ags see here >

chart of the day, cotton, feb 2011

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