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CAFE

Correction or sideways?Market taking a breather after the recent rally. I would think that the market is taking a break from the rally for now. Corrective levels below are the 7 day MA at 164ish, 20 day MA at 158 and 100 day MA along with the lower line of the upsloping trend channel. Option vol went out on the move, but commercials seems to be selling as physical prices in Brazil are as high as ever and provide good selling opportunities for commercials. IMHO, downside 1x2 calendar spreads or short call spreads are options.
K
by mjhillpp
KC shortUpdate on a upsloping trendline (blue) which acts as resistance On the 5 hour chart, we should have generated a sell signal. I still remain short via puyt spread 1x2s, as frost is no longer an issue. It appears the market is still digesting this from last week and should correct lower IMHO as physical supplies out of Brazil remain steady. Warehouse stocks in EU and US plenty as well. Dont get me wrong, as shown in the blue channel, even if we have a correction lower, the blue trend channel might indicate a change in trend, however the frost damage is simply not there and in order to rally, this market would need breaking news like that.... without anything of that sort coming out, I see a correction lower before making new highs. Still, knowing coffee, I remain short with 1x2 calendar spreads, buying the downside 1 leg in one month and selling 2 lower puts in a month further back.
KShort
by mjhillpp
2
No frost in BrazilSeems like no frost in Brazil. It was a busy weeks last week and throughout the weekend with fears a frost could hit coffee areas. None has been confirmed and worst fears did not play out. Once all of this is digested I expect some downside opportunities as the market goes back into trading technicals rather than emotions. Quite oversold and we saw sell signals on RSI and Stochastik a while ago. Also, the 5 hour chart will provide with a sell signal, which has been a superb indicator of short term price action (5-10 days). I am short via 1x2 calendar put spreads, long the 135s in Q and short the 125s in U and various other like this. As we move lower, option vega will come in and provide some nice profits. Also, selling the Sep (U16) contract provides with some good premium as this is considered the frost month. Looking at futures spreads, they have been weak the past two trading sessions and also foreshadow price action. Support at 134, then nothing until 125
KShort
by mjhillpp
5
Still waiting, beware bulls; risk reward not so greatPro Long (Chart): - RSI and Stochastik created buy signal - Orange support line Pro Long (Physical): - ICE warehouse stocks new lows - spreads tightening ever so slightly Contra (Chart): - still in middle to upper end of trend channel - room to go in terms of lower Bollinger band - long term trend still down - risk/reward for long position not there IMHO I start looking into selling put spreads out in August or September. For example the U16 110/100 p spread. Due to the negative put skew, 1x2s also work great IMHO (selling the one buying the 2s are also an interesting idea).
K
by mjhillpp
Note quite yet, KC longCoffee nearing the orange support line around 122 (2nd month continuation, about 119-120 front month ). Interesting fact about this correction lower from 134 to 122 is that this is the first time in a couple years that we actually have an up-sloping support line (orange line). If the orange support holds this could mark a longer term trend reversal. On the downside further targets remain the lower Bbands as well as the previous lows around 113. IMHO selling put spreads out in Sep16 might be a good risk reward once we reach the orange line (U16 110/100 p spread). The U provides some decent premium over the other contracts as this is the frost scare month.
K
by mjhillpp