COFFEE AND HOGS
July 30, 2019
The Coffee market is providing us with some pretty good volatility. Having hit a high on July 5 it has been a steady decline since then. On May 31 the positive indicator of the September Coffee market penetrated the third standard deviation of the 196 week average and has since steadily corrected. As of last Fridays close both of the indicators are within the first standard deviation and below the 205 week average. I have always felt if I call a market right there is no use in saying anything, good traders can tell. If I am wrong stand tall admit it, and take the heat. I was obviously wrong in having a buy recommendation at $105.00. So what do we know?
As of last Friday the September Coffee market remained in an uptrend. According to our model it will take a close at or below $95.60 on Friday August 2 to reverse the trend to bearish. As I prepare this article September Coffee is trading at $100.05. What is troubling to me is even should September Coffee close above $95.60 on Friday it will need to close above $107.10 on August 9. Possible? Certainly, but it will take a bit of energy to get there.
It is our opinion that over the course of working with our model the odds suggest (not guarantee) should a commodity come close to a trend reversal and fail the underlying trend will find renewed energy. What to do?
The present conditions actually support both buyer and sellers. If one is bullish one can look for levels to buy and use the $95.60 close stop on Friday (always suggest using stops). If one is bearish one can look for levels to sell and see if September Coffee fails to close above $107.10 on August 9. Good Luck!
The October Hog market is another market that has provided us with good volatility over the past number of weeks. It had been a steady decline from April 18 to July 9. On April the 5th the positive indicator had reached a point of being above the fifth standard deviation of the 187 week average. It took an entire month of trading lower for the October Hog market to become fully rebalanced. On June 28 the negative indicator for October Hogs approached the third standard deviations above the 199 week average. Once gain it has taken about a month for the market to become rebalanced.
The problem with the Hog market was even though it enjoyed had a significant rally in order to become rebalanced it still need a significant rally to turn the trend to bullish (see earlier reports). So what to do? We know October Hogs closed Friday last at $78.92. We know we need October Hogs to close at $85.47 on Friday, August 2 to reverse the trend. As I prepare this article October Hogs are trading at $73.32. We know as of last Friday both indicators are within the first standard deviation of the 205 week average and below the 205 week average. I will continue looking for rallies to sell. But be mindful that this market has the possibility to benefit greatly given the ASF situation in China should a trade agreement ever be reached. I strongly urge the use of stop loss orders.
My name is Lee Gaus if you have any questions you can reach me at 1-877-304-1369, 312-384-1166, or email me atlee@efggrp.com. If there is a commodity you would like me to address shoot me an email.
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