Blue Line Breakfast Report - Cocoa Sugar Coffee OJ - February 10
“Actionable Trading Ideas that help you stay ahead of the markets”
*Coffee the worst performing commodity of the YEAR
General Market Commentary
Markets are trying to weigh in the effects of the Coronavirus on the global economy and investors are asking themselves how defensive should one position their portfolio. While the US employment data showed a robust 225,000 jobs created this might not be enough to starve off a selloff this week. Industrial commodities like copper (-9% ytd) and silver (-1.3% ytd) have come under pressure from the virus and investors are disappointed in gold’s (+3.3% ytd) technical action of a failed breakout. Agricultural markets are already bracing themselves that China will be unable to meet the import quotas set forth in the trade agreement and with the US dollar (+2.6% ytd) and approaching 2 year highs, I would expect this to be a headwind for exported commodities.
Cocoa (+13.7% ytd)
The weather continues to stress the cocoa crop during a critical time in the growing cycle with hot dry weather and little signs of rain in the upcoming week. Farmers need to get one good rain every couple weeks in order to keep the crop in good shape. From a trading perspective the breakout on the charts has position traders adding to their long positions from back on January 10th at 2588. The first level of support is at 2819 and the sell triggers are down at 2754. This is where trend traders would go flat, not initiate shorts. For traders working close with me, we had established May call spreads just before the breakout. Give me a call if you are interested in softs trading or want clarification on the specific spread.
Sugar (+11.4% ytd)
Data on India’s sugar production is down 24% and continues to support the market. We will most likely come back into this market during the week to the long side providing a complete collapse doesn’t occur in the crude oil market. Looking at crude, it has done an excellent job holding the $50 range. Sugar trend traders are holding longs from January 6th at 13.73 and first level of support is 14.56. Their sell triggers are down at 14.15 and is the spot they would flatten up longs.
Coffee (-22.2% ytd)
This market has been the worst performing commodity since the start of the year and finally maybe turning a corner with the short selling drying up. Looking at last week's Commitment of Traders report we finally saw a reduction in the net short position indicating that a turn around might be approaching. Now from a trading standpoint, there's two ways to approach counter trend trading and I’ll put them in order of risk based upon my opinion. The most risk averse strategy would be to buy a call spread, such as the May 102.50-107.50. The second would be to use a buy stop to initiate a trade over the first resistance and once filled use a sell stop below critical support near the contract low. This would be something like a buy stop at 104.60 and once filled a sell stop at 99.50 to protect yourself. Now remember that Futures trading involves substantial risk of loss and may not be suitable for all investors so please call your broker or give us a call to further discuss 312-858-7303.
Orange Juice (-4.9% ytd)
Good luck and good trading,
Chief Market Strategist
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Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results