Be advised that all my comments are my OPINION and that OPINION is based on my long term in-house model that I dubbed LAWG 647. The prices I use in my model are week ending prices, usually Friday.BTW, trading commodities is risky and not meant for those that faint at the sight of blood.
June 16, 2020
COFFEE……HOW DO YOU LIKE THOSE BEANS NOW?
You may recall from previous articles that Coffee is one if not my favorite market. Given the recent plunge in prices I thought it would be a good idea to take another look at Coffee for a quick review and what may be in store weeks ahead.
What do we know?
We know that Coffee re-confirmed a bearish trend on April 24 on a weekly close at $107.00.
We know that September Coffee broke $18.50 from the high of April 24 to the low of yesterday, June 15.
Fundamentally we know that Brazil looks like it will have a record high Coffee production 2020/2021.
The bearish global supply picture has made it difficult for Coffee to gain positive footing even with some signs of improving demand as more countries come out of lock down.
In my opinion the commodity markets as a whole are suffering from a general malaise do to world-wide risk aversion.
What does the Model tell us?
For background you may wish to view my Coffee letter of May 18 which can be found on our website. In that letter we discussed what the Model was telling us and where we could well be going. Now that we have gone there what is the Model telling us now?
As of last Friday’s close The Model is clearly showing September Coffee remains in a protracted downtrend. We know that the Negative Indicator is above the second standard deviation of the long term average. While the Negative indicator is approaching Positive Equivalency, time to consider counter trend buying opportunities, I believe we still have more downside room. I am inclined to wait for the Negative Indicator to become three or more standard deviations above the long term average before counter-trend trading from the long side.
This is based on the going forward values needed to turn the Coffee market bullish. Listed below are the dates prices needed to turn September Coffee bullish.
June 19 $120.95 if fails then
June 26 $118.70 if fails then
July 3 $107.85 If fails then
July 10 $107.25 If fails then
July 17 $112.70
As you can see Coffee is a long way from the prices needed to reverse the trend, ergo I expect further downside pressure at least for the near term. Once Coffee’s Negative indicator is above the third standard deviation of the long term average I will look for buying short term buying opportunities.
What to do while we wait?
I am of the opinion that Coffee will give us rallies to short before the Negative Indicator reaches the third standard deviation above the long term average. For the more risk adverse consider selling September Coffee at the $101.30 level, otherwise consider selling at the $98.00 level.
If you are interested in where we see potential levels to enter the market shoot me a E-mail at lee@efggrp.com, or call me at 1-877-304-1369.
There is significant risk involved in trading futures and/or options on futures.