Breakfast Report - Cocoa Sugar Coffee OJ - February 11
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*Coffee the worst performing commodity of the YEAR
General Market Commentary
Watch out Coffee (-21% ytd) it appears the entire energy complex is trying to fight to become the worst of the worst with Heating Oil (-20% ytd), Natural Gas (-19% ytd), and WTI Crude Oil (-18% ytd) all fighting to be crowned worst performing commodity of the year. Crude Oil is right on critical support at $49.31 and should be jeopardized over the coming days, especially if inventories show another sizable build. I have to say if energy demand is severely damaged one would expect that to be a reflection of the global economy resulting in weaker equity prices. However the injections of capital in the markets combined with what appears to be a “Plunge Protection Team” working to maintain order and ensure President Trump’s reelection chances are helping boost equities back to all time highs.
Cocoa (+13.1% ytd)
Not a big update here: 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 2829 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.
*Demand concerns at this point are being discounted with weaker port arrivals.
Give me a call if you are interested in softs trading or want clarification on the specific spread.
Sugar (+11.9% ytd)
With London Sugar hitting another high and a shortfall on Thailand’s crop, it looks like the production numbers globally are going to take another hit. Data on India’s sugar production is down 24% and continues to support the market and is not at all concerned with weaker energy demand nor the weakness in the Brazilian Real. 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 (-21% ytd)
Coffee saw a sizable jump and was the second best performing commodity of the day with a 1.89% return for longs. Evidently a few traders out there while drinking their coffee decided it would be a good time to initiate short covering and is most likely failing to attract new shorts at this critical level of support (at least for the time being). I suspect it was a sector rotation from short coffee to another market like crude oil. Gamblers will probably “punt” to the long side.
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 (-1.5% ytd)
The Juice is loose with a 3.58% gain on the day and the best performing commodity. I suspect this was stale money in a short position that is looking for more return somewhere else. If we get another sizable move higher Tuesday, this might attract the bottom pickers and gamblers to the long side.
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