Coffee Prices Take Defensive Posture

Name: Jurgens Bauer Company: Jurgens Bauer & Associates

Years Trading: Favorite Movie: Shawshank Redemption

Coffee prices provided an illusion of recovery from Tuesday’s sharp drop, when early dealings in Wednesday’s session had New York values edging higher. Yet when all was said and done, the result was another down day with December settling 133.10.

With option expiration looming, and the prospect of 135 and 130 nearby, I do not think it’s likely that December will push into new highs Friday. Furthermore, the action shown during the past two or three days shows that coffee prices have taken on a defensive posture. Therefore, I think it’s likely that there is further downside work to be done. And support needs to verify that it’s able to hold, before confidence and momentum can be re-created sufficiently to revisit the highs of 139.90 in December. I still don’t rule out the upside as I still like the long-side long-term, and might well suggest using subsequent pull backs to establish long positions. However, there could still be some weak-handed longs that need to get shaken out—and option expiry isn’t usually the time for a quick blast to the upside. Or is it?

E-trading showed December coffee 135.70 Thursday morning, +2.30, the high at the time of this writing was 135.75 and the low was 134.00.

London last 1959, +10, high 1969, low 1949.

Support: 132.60, 131-130.50 Resistance: 136.50, 138.-140, 141, 144?

Cocoa Comments

Cocoa has been a frustrating market for me lately. I suspect that I’m not alone in that regard either. I seem to get chopped around and do not know whether to dump my long fences or let them ride. For now, I’m letting them ride.

I was encouraged by Wednesday’s action, and think that resistance at 1850-1865 will be challenged soon. Should that area yield, then 1900 would be the next objective. If it doesn’t, then prices are apt to retreat again and revisit support at 1810. If that breaks, then I’m covering and standing aside.

A look at Thursday morning e-trading has the December contract at 1835, unchanged, with a high of 1835 and a low of 1831. London is 931, +1, the high 932, low 924.

Support: 1810-1795

Resistance: 1865-70, 1890, 1920-1940

Cotton Comments

It should become increasingly obvious that there are two distinct views of where cotton prices will head, and neither one of those are calling for sideways.

As I have repeatedly pointed out in these comments, the fundamentals for cotton are bearish—and this Friday, the crop report should only serve as another bearish arrow in that camp’s quiver. The other camp strongly is betting that prices are poised to make dramatic moves upward. Their belief doesn’t focus on the current forces of supply and demand for cotton, but rather on the fact that with grain prices at historical levels (especially in relation to cotton prices), cotton values will increase as acreage is lost.

While the bearish camp is led by traditional cotton players (and they have met with some success over time), a lot of innovative and resolute money has established long cotton positions. This tug of war is growing larger, but one day somebody is going to let go of the rope and prices are going to really make a huge move.

I have also pointed out that funds seem to be already at work, rolling long positions from Dec into March as well as some other months. Thus, look for spreads to widen.

In an effort to predict the market’s future by using past price behavior, it is wise to look at the charts. Some of you might recall my mention of the potential of a bullish inverted head and shoulders pattern developing or being formed. I was showing that formation to a colleague today, and he made the observation that while that pattern could still prove itself correct, there was something else. Look at the move we are now involved in, and compare it to the move we had in July. They look far too similar in many ways, which makes one wonder if there is a sharp sell off coming.

So, there you have it, two different projections from the same chart. One suggesting a move to much higher ground; the other suggesting a repeat performance of what we went through earlier this summer.

I wonder if buying straddles makes practical sense? Straddles would certainly take advantage of a pop in either direction. Or maybe back spreads would be a better choice, allowing your choice of direction to depend upon which camp you’re in.

And by the way, the crop report isn’t simply about cotton. It will be the net impact of what happens in the other markets that will ultimately decide what cotton will have in store.

This morning December is showing 64.36, +15.

Support: 64.00-63.75, 62.70-62.50, 62.20

Resistance: 64.30-50 and 64.85-65.00,

The Information and opinions contained herein comes from sources believed to be reliable, but certainly not guaranteed as to accuracy or completeness. No responsibility is assumed with respect to any statement, nor with respect to any expression of opinion herein contained. All views are the opinions of the author at the time of writing and are subject to change without notice. No statement should be construed as an offer to buy or sell a commodity. This publication is for information purposes only.

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