COFFEE, COCOA and HOGS
August 19, 2019
There are a number of markets that hold particular interest for us this week so I picked two that I think you might find interesting. Both have several things in common which we will discuss below.
COFFEE: What do we know? According to our in house model we know that December Coffee is in a downtrend. We know that in order to reverse to an uptrend it must close at or above $124.20 on Friday August 23rd. We know while that is possible it is not really probable.
But this is what else we know. In order to turn Coffee bearish it used a great deal of accelerated energy which has caused December Coffee to become overstretched to the downside. Presently as of Friday’s close our in house negative indicator for December Coffee went above the second standard deviation of the 208 week average. We know that the negative indicator is so over stretched that it has reached a point of positive equivalency. What does positive equivalency mean? It means that the market has become overstretched to the downside to the point where the positive indicator begins to move higher suggesting a potential of a short term market recovery. Things to know about this type of recovery are that it can take a month of higher prices to regain a position of equilibrium and then the underlying trend can once again exact itself. This tells me to look for levels to buy. Coffee market can indeed go lower but over the past 208 weeks the negative indicator exceeded present values only three times. But be mindful that PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. What to do? Those willing to take a bit more risk can look to buy at or close to current levels (trading at $96.65 as I write this article). Those that choose to be a bit more conservative look to buy around $95.00 to $94.50 give or take. I do suggest the prudent use of stops.
COCOA: Talk about a market that is difficult to trade! There is none more difficult for me than Cocoa. For that reason I rarely step out with a Cocoa comment or recommendation, but alas there are times when our model suggests an opportunity that must be examined.
What do we know? According to our in house model we know that December Cocoa is in a downtrend. We know that in order to reverse to an uptrend it must close at or above $2860 on Friday August 23rd. We know while that is possible it is not really probable.
What else do we know? We know that the negative indicator is so over stretched that it has reached a point of positive equivalency. What does positive equivalency mean? It means that the market has become overstretched to the downside to the point where the positive indicator begins to move higher suggesting a potential of a short term market recovery. Things to know about this type of recovery are that it can take a month of higher prices to regain a position of equilibrium and then the underlying trend can once again exact itself. This tells me to look for levels to buy. We know that as of Friday the negative indicator for December Cocoa finished over three standard deviations above the 208 week average. We also know that over the past 208 weeks the negative indicator reached this level of overstretched only once. But be mindful that PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
What to do? I am suggesting one look to buy December cocoa at or near present levels and use prudent stops.
HOGS: What do we know? According to our in house model we know that October Hogs are in a downtrend. We know that in order to reverse to an uptrend it must close at or above $85.05 on Friday August 23rd. We know while that is possible it is not really probable.
But this is what else we know. In order to turn Hogs bearish it used a great deal of accelerated energy which has caused Hogs to become overstretched to the downside. Presently as of Friday’s close our in house negative indicator for Hogs went above the second standard deviation of the 208 week average. We know that the negative indicator is so over stretched that it has reached a point of positive equivalency. What does positive equivalency mean? It means that the market has become overstretched to the downside to the point where the positive indicator begins to move higher suggesting a potential of a short term market recovery. Things to know about this type of recovery are that it can take a month of higher prices to regain a position of equilibrium and then the underlying trend can once again exact itself. This tells me to look for levels to buy. Hogs can indeed go lower but over the past 208 weeks the negative indicator exceeded present values only four times. But be mindful that PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. What to do? Those willing to take a bit more risk can look to buy at or close to current levels. Those that choose to be a bit more conservative look to buy around $61.70 to 61.17 give or take. I do suggest the prudent use of stops.
My name is Lee Gaus if you would like to receive an introduction trial to our daily and weekly commentary click the link and sign up. If you have any questions you can reach me at 1-877-304-1369, 312-384-1166, or email me at lee@efggrp.com. If there is a commodity you would like me to address shoot me an email.
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