On Friday March coffee closed up 70 points at 1.1900. This up tic represented the first up tic close in seven days. The forty day moving average is at 1.2182. It has been trending down for a few weeks after having flat lined for the month of November. The sixty day moving average is at 1.2436 and has flat lined for the past four weeks. For nearly the past two months March has traded in a rather narrow range of approximately 1.21 +/- 600 points. A close above 1.2750 or below 1.550 would suggest a continued move outside of the above stated trading range. The dollar remains strong and the Brazilian Real remains weak. The weather in Brazil although not perfect it is not terribly unfavorable. All things considered the fundamentals seem to be neutral or have no major influence on the market. If there is bearish sign, the Brazilian agriculture industry, Conab, just increased its coffee crop report for 2015 from 42.1 to 43.2 million bags. Brazil produced 45.6 bags in 2014.
Speaking of coffee production I have attached the International Coffee Organization’s crop report for each country from 1990 to 2014/15.
To my Jewish friends, Happy Hanukkah, this sixth day of Hanukkah!
To my Christian friends, Merry Christmas!
And to everyone, a Happy and Prosperous New Year!!
Today is the seventh day that the March coffee contract has traded generally above both the 60 and 40 day moving averages. Currently, March is at 1.25, down 135 points. For the past six days March has tried to close above 1.2750 without success or close below 1.2400 without success. A 350 point trading range for six days is very narrow when you consider the volatility that we have seen throughout 2015 when the range has risen has high as 550 on average for 14 day period.
Generally, trading above or below the 40 or 60 day moving averages for several days indicates a trend in that direction. However, back in October March was above these averages for ten trading days and then fell below the averages for over a month.
I have attached four reports: a technical analysis, funds going short, and two reports about Vietnam and the Robusta market. The Vietnam report indicates that Vietnam, although holding back awaiting higher prices, has a lot of coffee to sell.
While I type March heads to the cellar, down 475 points at 1.2160. This price is not as low as Tuesday’s price where the low was 1.2100. Let us see where we close.
Last week although the rest of the world was not on vacation or had a short week, coffee’s volume was light and the market traded in a fairly narrow range. But on Monday of this week March coffee moved down nearly 400 points. It then traded flat for two days. On Thursday it moved up over 400 points to right where it was before the Holiday. Except for two days during the past ten days March traded over the 40 and 60 day moving averages.
Today at the time of writing March is trading at 1.2600, up 110 points. If it closes at this level, it will be the highest close since October 21st.
I have attached three articles. One regarding weather forecast for Brazil. This article indicates that although the coffee growing areas of Brazil are receiving some rain, the moisture in the soil is still not at an adequate level. The second speaks to the current condition of the market. The third article is technical. It says that if the market closes at this level or, more specifically, above 1.2660 it would be a near term bullish sign. Open interest has more commercial shorts than longs. If the market looks like it is going higher, these traders could start to get out of their short position by buying the market which would just accelerate the accent.
Yesterday the March contract started the day by jumping nearly 200 points in the first hour. Then it retrenched a little bit, only to jump over 300 points between 8:30 and 9:00. It was not until ten minutes before the close that March decided to drop 200 points. March closed at 1.2440 up 220 points up 620 points for the weeks and 910 points up from the low.
Friday’s move crossed the 40 and 60 moving averages which encourages the bulls.
I have attached two technical articles. Although the long term trend is still down, fundamental issues such as the strengthening of the Real and the potential for big crops in Brazil and Vietnam next year could have bullish and bearish influences respectively. Technically, the short term trend is up.
Today, coffee went through a bit of a correction. March closed up 645 points at 1.2220.
Today was first notice day which is the day that the exchange begins to issue delivery notices for delivery of coffee to those traders that have bought contracts. So it appears that those traders who were short aggressively bought out of December. The buying of December the hit buy stops issued by those traders who were short thus accelerating the climb. Most of the action occurred from 9:15 to 9:30 when the market went up about 350 points and trading nearly 3,000 lots. And 1,500 lots were traded in the last 10 minutes which pushed market up so that it closed near the high for the day.
I have attached two articles about Robusta coffee. one of the articles says that Vietnam is withholding coffee and is not a seller.
Also here are some other technical comments:
Market has gotten off to any early push higher, aided by a Brazilian Real that has strengthened into 3.73. Upward stochastics along with the bottoming of the lower Bollinger band have also fueled the early fire….a classic post FND bounce.
Even though we have taken out the down trend line of resistance (118.00), off the tightening triangle I still believe the true test is found at both the 40 and 50 day moving averages.
Bollinger band levels
If history is any guide, tomorrow will be a reversal, but I would not plan on it. We may have seen the bottom!
I apologize for not writing to you sooner. I was at a show which was quite successful and on vacation.
Since we have now passed the first notice day for the December coffee contract, I will talk about the March contract. Before this week the March 2016 coffee contract had five out of six down days. The only up day was November 2 for 40 points. This week Monday was a 240 point reversal, but yesterday was March down and so far this morning it is down. At present March is at its low for the day at 1.17 down 130 points and trying to go lower. As we go through the liquidation of December which still has an open interest of 18,000 lots the downward trend could continue. By the way March’s open interest is 102,000, over five times greater that December. The falling of March could be due more to the liquidation of December rather than fundamentals. Since there are more shorts than longs in December as they switch to March they buy December and sell March.
By the way I have seen various rain fall predictions for the coffee growing areas of Brazil. Some suggest heavier than normal rain fall. Other reports indicate that more rain is needed. Uncertainty causes volatility.
I have attached three articles. The first article is about the lack of rain in the Robusta coffee growing areas of Brazil. The second article discusses the Robusta crop reports which vary widely from deficits to surpluses. The third article is about Keurig and its lack of success with 2.0 and Kold which process a very expensive product (about $2 per serving).
After spending five days trying to get above 1.22 and close above 1.21 the bears took over and pushed December coffee down 315 points to close at 1.1775.
The weather report for the Brazil coffee growing areas calls for light to moderate rain through Tuesday and above normal rain for the next two weeks. Maybe our drought problems are truly easing.
Next week we will probably see some volatility. The non-commercial traders who have 40% more short positions than long will begin to move their positions from December to March 2016. This action will mean that the shorts will be buying December and selling March and the traders will be trying to take advantage of the spread between the two months. On the other hand there are a lot of produces who have not fixed their position for December and will have to fix their position by selling December.
On Friday after three spinning top days between 1.3250 and 1.3750 and trying to break through 1.3750, the bulls gave up. The market opened down 145 points and never looked back. The bears were now in control. The Dollar was strong and The Real was not weak and the weather in Brazil is not was not very favorable. But the forecast for several days out was favorable and the bears seized on it. Also, there was some profit taking after a 1,500 point rise.
I have attached a Dow Jones report which explains the decline further.
The past seven out of eight days and the last four days including today have been up days. As of this writing December coffee is up 195 points at 1.3645. With the movement up of 1500 points in eight days we are probably due for a correction. But the market is influenced primarily by the Brazilian Real, its politics, and weather, and the US Dollar and today Brazilian politics are not good, Brazilian weather is mostly dry, and the US Dollar is softening.
I have attached articles that talk about the weather, the market, and Vietnam. They are all good reading