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.
After having eight of the past nine days as down days, the market was due for a correction. Today, December tried in one five minute period to get to 1.20, but only reached a high of 1.1995. December closed at 1.1925, up 180 points. Today’s correction was not like some of the more violent/dramatic corrections that we have seen in the past months which suggests to this humble servant that it has limited strength. Short term we may see the bulls try to exert their influence, but the long term downward trend is still in place.
I have attached two articles. The first one talks about market trends from a technical perspective. The second article talks about prices for Vietnam’s coffee which is reaching the cost of production and what action the farmers may take if the prices continue to drop.
Today was another down day. December coffee opened up 20 points and then it started to fall and closed 45 points up from the low at 1.2100, down 375 points for the day. The attached document indicates that precipitation will be above normal for the next few weeks. Neither the Dollar nor the Brazilian Real have moved much in the last week. So it appears that weather in Brazil is driving the market. If the rains continue and we have a good flowering Brazil we could easily challenge 1.15 again.
The other attachment indicates that Colombia is cutting its quality standards so that they can sell more coffee.
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
Today, December closed up 355 points at 1.2430, the highest close since August 31st. Neither the Dollar, the Real, nor the weather appeared to have changed much from yesterday to today. And I have not seen any bullish crop reports.
So what happened? For six days the market has tried to go higher or tried to break through 1.2250. At 12:45 with about twice the normal volume December climbed to 1.23. During the next five minutes with about five times the normal volume December went up another 200 plus points to 1.2525. December then retreated to 1.23 before a close above 1.24. Is this the break out for which the bulls have been looking?
The attached article states that China will grow its consumption of coffee significantly over the next several years as consumer spending increases on “luxury” crops such as coffee.
Today December coffee closed down 60 points at 1.2075. The last two days have represented two candlestick spinning top days. Also, each day the daily highs have been lower than the previous day and the daily lows have been higher than the previous lows. In other words they have been inside trading days. Clearly, the market is consolidating. There is good support around 1.15 and good resistance above 1.2250. A break through of either one of these levels could mean that we are setting a new short term trend.
On a long term basis the trend is still down.
The Dollar is not losing strength. The Brazilian Real is not gaining strength. Rain, although light, is returning to the Brazilian coffee growing areas. However, the world supply of coffee is still low.
Consolidation should continue for a while until more convincing information is available that leans strongly in one direction.