Investors seem to have rediscovered their appetite for risk of late. The Reuters Jeffries Commodity Channel Index looks ready to jump up and out of its multi month sideways trading range. Coffee put in contract highs last week and Sugar rallied above the 38.2% retracement of the huge break it experienced from February thru the first week of May. Cotton has the look of a market wanting to break out to the upside. Only Cocoa remains trapped in a directionless trading range that began in late February of this year. Let’s review these markets and attempt to discover why.
Coffee 08/06/2010
Life Time Trading Range 41.50 Cents - $337.50 per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
Coffee is facing an assortment of hurdles, some close at hand and others at harvest time. After making 12 year highs, the market stopped dead in its tracks; reversed and then quickly retreated. We may very well have seen a major top in Coffee. Additionally, the sizable Coffee crops expected from Brazil and Vietnam is weighing on the market, more so as harvest time approaches. Without the current weakness in the U.S. dollar the recent strength of the Coffee market would not have been as strong. Deliverable ICE and Liffe Coffee supply remain tight and are supporting Coffee prices for the time being. This will come to an abrupt end when the 2010-11 harvest begins flowing through the supply lines.
Weak exports have been reported by a majority of Coffee producing countries. Vietnam has again developed a program to warehouse Coffee stocks in order to bolster prices. The Colombian harvest is expected to show an improvement over last years, and we have a record harvest coming from Brazil which at this time is about half way completed. A major retailer in the U.S. has raised prices close to 10 percent. There is concern that other retailers may follow their lead. Higher prices at this time could very well create decreased demand. Huge harvest + decreased demand = lower prices. We shall soon see how this picture develops.
Technical Analysis is a methodology. The information below is not to be taken as trading advice or as a recommendation to buy or sell any commodity future or option. It may or may not agree with the fundamental analysis that appears above.
Weekly Technical Indications: Coffee appeared as if it was about to embark on a journey to $2.00 and possibly beyond after last week’s action. This past week the market traded just above the top band of the Bollinger study and just about down to the 9 bar moving average. It now appears that what we have witnessed is a blow off top. Early this week Coffee made a new high of 181.50. Not able to hold, the market quickly reversed and traded as low as 165.15. The stochastic did not issue a buy signal and in fact D and K are touching and about to flash a failed buy signal. This is an extremely negative indication! The R.S.I. stands at 66.98, lower than last week’s reading of 74.59. The M.A.C.D. histogram stands at 3.41 and lower than last week’s reading of 4.27. The bull has retired to the barn for a nap.
Do not trade without the use of protective strategies such as stops and or options.
Cocoa 08/06/2010
Life Time Trading Range $444 – $5379 per Tonne
Trades on The ICE 3 AM – 1 PM
Cocoa is doing its best to break out of its long lived trading range and move higher. The possibility that the October delivery cycle will mimic July’s which saw one entity take delivery of the majority of open contracts. Although October’s deliveries are an unknown at this time, there is great concern that a repeat of the situation could occur. Cocoa arrivals at Ivory Coast ports are running about two percentage points below last year at this time and high quality Cocoa is as scarce as hens’ teeth. These factors are supportive to Cocoa prices.
Rains have ceased over the majority of the Ivory Coast’s Cocoa growing areas. Though being welcomed, the colder temperatures accompanying the dry weather are slowing development of the 2010-11 main crop. Nigeria’s Cross River growing area reports that their main crop is developing well and a good harvest is expected. According to the Commercial Association of Bahia, the volume of Cocoa arriving at Brazilian ports for export rose slightly in the week ending August 1st. Although Cocoa supply should increase substantially in the coming months, Ivory Coast mid crop Cocoa is of subpar quality and of concern to the Cocoa industry. Sunny, rainless days are needed to improve the Ivory Coast mid crop Cocoa beans. If that does not come to pass, short term supply tightness will remain an issue.
Technical Analysis is a methodology. The information below is not to be taken as trading advice or as a recommendation to buy or sell any commodity future or option. It may or may not agree with the fundamental analysis that appears above.
Weekly Technical Indications: Trapped! After last week’s strong performance Cocoa reversed and headed lower. This week’s lows pierced both the 9 bar moving average and the center band of the Bollinger study. Presently trading between them, this market has absolutely no directional preference. The stochastic, flashing a sell signal has reversed course completely and negated the buy signal issued last week. The R.S.I. stands at a bearish 49.27, lower than last week’s indication of 52.43. The M.A.C.D. histogram stands at 15.04 and lower than last week’s indication of 20.39. This market is directionless and the technical indicators have been rendered useless. Unless you like playing inside a *vegamatic don’t waste your time or money!
*A food chopping device invented by Ron Popiel of Pocket Fisherman fame.
Do not trade without the use of protective strategies such as stops and or options.
Cotton 08/06/2010
Life Time Trading Range $26.84 – $117.20 per Pound
Trades on The ICE 8 PM – 1:30 PM CDT (Next Day)
Unexpected weather events are behind Cottons leap to the high side of its five month old trading range. U.S. Cotton growing areas are experiencing extremely hot weather. So much in fact that this week’s crop progress report showed a two percent decline in the Cotton crops condition in the good to excellent category. Continuation of this hot weather pattern will soon begin to negatively affect crop yield as well. Russia is experiencing record heat this summer. The majority of recent economic reports have been better than expected as well. These events are all supportive to Cotton Prices. Not to be overlooked is Cotton production in Uzbekistan. I have been unable to ascertain if there has been any crop damage there due to drought. I will continue to pursue.
U.S. Upland Cotton sales for the week ended July 29th were 36,500 running bales for delivery in the 2009-10 marketing year. This was up considerably over last week but down 54 percent from the four week average. The U.S. Cotton market is driven by exports. Softness in U.S. demand can be offset by strength in export markets. Growing conditions in other Cotton growing countries have been good this season and should be of concern to U.S. exporters. Higher foreign Cotton output could very well put a dent in U.S. export demand. The Cotton market seems to have acclimated itself to the drought conditions in Russia and growth prospects in China. We must keep close tabs on our exports in the coming months.
Technical Analysis is a methodology. The information below is not to be taken as trading advice or as a recommendation to buy or sell any commodity future or option. It may or may not agree with the fundamental analysis that appears above.
Weekly Technical Indications: Cotton traded to just above the top band of the Bollinger study this week. Lurking just below it now, the market is in the upper reaches of the trading range it has been trading within for six months. If the market were to break out above the range it must not return to the range. If it were to do so, odds are that the market would trade down to the bottom of the range. The stochastic remains in buy mode, the R.S.I. stands at a bullish 60.80 and higher than last week’s indication of 57.20. The M.A.C.D. histogram is improved at -0.16 is microscopically better than last week’s reading of -0.51. Trading a breakout to the upside seems reasonable here, but by all means use tight money management stops if you do.
Do not trade without the use of protective strategies such as stops and or options.
Sugar 08/06/2010
Life Time Trading Range 2.30 Cents – 66.00 Cents per Pound
Trades on The ICE 2:30 AM – 1 PM CDT
At this point, Sugar has retraced a bit more than a third of the breakdown in price it experienced earlier this year. Thus far the week’s action has been to the downside. We may have experienced nothing more than a normal correction in a severely oversold market. The expected large Sugar crops of Brazil and India should provide us with a surplus of Sugar for some time to come. Traders are awaiting news out of Russia and Eastern Europe regarding the condition of their sugar crops. The combination of record hot temperatures and the many fires may have severely damaged the Sugar crops there. Though the majority of Sugar grown in Russia is beet based, it’s still sugar – and not bad tasting at that.
Output from the worlds Sugar producers is expected to put the world’s sugar supply into a condition of surplus. This follows two back to back years of deficit. Supply tightness early this year was the primary engine behind the three month rally that may have topped out earlier this week. Technically, if this was the top it was the perfect price area to do so. More on this further on. This harvest season, mills in the center south region of Brazil have processed 30 percent more Sugar cane than the same time last year. October Sugar put in a reversal after making a high of 1988 Monday.
Technical Analysis is a methodology. The information below is not to be taken as trading advice or as a recommendation to buy or sell any commodity future or option. It may or may not agree with the fundamental analysis that appears above.
Weekly Technical Indications: Sugar, having traded above the top band of the Bollinger study last week, moved a bit higher early this week only to reverse and head for lower levels. The market has traded lower than last week’s lows and appears to be losing strength. At the close of trading last week the stochastic flashed a buy signal, at the end of this week it will flash a sell. The R.S.I. is lower at 51.17 versus last week’s reading of 56.51. The M.A.C.D. histogram stands at +.86 versus +.84 last week. This is typical topping action. The Sugar market is about to be flooded with new crop supply. Opportunity errs to the sell side unless something catastrophic strikes.
Do not trade without the use of protective strategies such as stops and or options.
