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*Coffee the worst performing commodity of the YEAR
General Market Commentary
The S&P 500 reached an all time high today however was unable to hold onto those gains for the second half of the session. The markets were looking for Fed Chairman Jerome Powell to provide reassurance that they would step in and support the market given the effects of the Coronavirus on the global economy. WTI Crude Oil also found some support but this seems to be short lived and could fall back down to contract lows if we see any signs of a build on the EIA energy stocks release at 10:30 a.m. est.
Cocoa (+13.7% ytd)
Backing and filling in a small gap with the second day lower. I’ve seen this chart pattern many times and generally if we break the close in level of support on the charts, we trade down to the second before forming a consolidation. Nothing else stands out other than the usual hot dry weather impacting production levels.
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 2868 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 (+14.3% ytd)
A nice clean breakout on the charts, as a smaller production in Thailand has traders concerned about the global supply issues at hand. We are already seeing a smaller crop out of India which should give us a big global deficit. Shorts have to feel like they are getting squeezed so the next couple sessions are going to be interesting as we head into expiration.
Sugar trend traders are holding longs from January 6th at 13.73 and first level of support is 14.84. Their sell triggers are down at 14.22 and is the spot they would flatten up longs.
Trend traders will most likely add to their longs on any pull back or gap open on the night session.
Coffee (-20.5% ytd)
The market had passed a small test by holding onto most of Monday’s gains. The Brazilian Real Continues to slide lower giving some level of concern however I feel like the small speculators are starting to come into this market back 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 (-0.35% ytd)
The shorts were knocked out of this market with today’s extension upward. Fundamentally this market is lacking the headlines and still is in the long term downtrend but one could consider the two day strength as a sign that a change is coming to the good.
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