Commitment of Traders Report to Cap Coffee's Rally

Commercial Traders Nail 20% Rally. Anxious to Take Profits.

Classic Commercial trading pattern mimics the rise and fall normal market behavior.

 

July 23, 2012

This trade setup is merely a random sample of the day’s trades generated by COT Signals. To track our work their and receive all of our nightly trading recommendations, click here.

We published a buy recommendation in the coffee futures market on June 22. We suggested that based on the movement we saw in the Commitment of Traders Report as well as the discrepancy between JO, a coffee ETF versus the coffee futures, that the coffee futures market had become oversold and commercial traders were building a base to force short covering in the futures market.
The coffee futures market has rallied 20% since then and commercial buyers from one month ago have turned sellers. Commercial sellers have pared their position by 23% in the last three weeks. The heavy selling has turned momentum negative while Thursday and Friday’s action created a reversal and sell signal from overbought levels. We will be selling September coffee futures and placing a protective stop above Friday’s high of  190.85.

Commitment of Traders shows reversal in Commercial positions.

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ANDREW WALDOCK
866-990-0777
This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation by Commodity & Derivative Adv. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

Coffee Futures to Lead Coffee ETF (JO) Higher

Futures Move Farther & Faster than ETF

How to invest in the volatility differential between futures and ETF's.

It is widely accepted that the commodity futures markets move farther and faster than their equity related cousins and I certainly agree with that supposition. We see it all of the time. The leveraged nature of the futures markets and subsequent margin requirements allow smaller players to enter the markets due to the lower capital requirements as well as forcing them to exit for the same reason.

The coffee futures market has fallen by nearly half since the September highs. Over the same period, the Coffee Exchange Traded Fund (JO) has fallen by 40%. The 8% difference is easily attributable to excessive pressure on the short side of the futures market. 

This added pressure is also what will cause the futures market to bounce off its lows far more quickly than the ETF. The bounce will be fueled by massive short covering from Index funds and small speculators as the commercial traders in the coffee futures market have built up a very large long position on the market’s decline.

Clearly, the commercial trader sentiment is that this market has been beaten down below its deliverable price in the cash market. They are using these prices to ensure their production costs moving forward. Our philosophy of following the commercial traders in the commodity markets is based on our beliefs that no one knows a market like the people who whose living is tied to it. We track their actions through the Commitment of Traders Report and put their analysis to work for us at COT Signals.

 

ANDREW WALDOCK

866-990-0777

This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation by Commodity & Derivative Adv. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

Covering Coffee Futures Short Positions

Commercial Traders Holding Long Coffee Positions

Small Speculators and Funds Covering Short Positions

The coffee market has been one of the weakest markets of 2012 with prices declining more than 25%. Commercial traders were heavy buyers on the market’s decline to the 180-190 area where the market consolidated for months until May’s decline hit all market sectors.
Commercial traders have held fast to their position with very little net change since the middle of March. It appears that they may be getting the bounce they’ve been waiting for.
I expect this is primarily a large speculator and fund driven short covering rally given the magnitude and the timing as the July contract expires. Never the less, it’s perfectly conceivable that we trade back to the bottom side of the resistance between 170-180. Our protective sell stops will be placed at the swing low of 150.10
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Call for Free Trial.  866-990-0777.

ANDREW WALDOCK
866-990-0777
This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation by Commodity & Derivative Adv. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.