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Coffee Futures: Break or a Fake?

by Ilan Levy-Mayer
  • Coffee futures can be one of the more volatile commodities around, especially during different seasons where drought concerns
Coffee Futures: Break or a Fake?
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Coffee futures can be one of the more volatile commodities around, especially during different seasons where drought concerns or frost concerns in brazil can really move this market. I remember when I first started trading coffee about 16 years ago and got caught selling call options in a market that started building weather premium...that a was a painful lesson for a beginning commodity broker but as you can see, one that lasted a long time...

So this morning I drove into the office and was thinking which market should I analyze and share with you? Gold seems to be in a tight range and should break out, SP 500 broke the significant 2000 mark...but as scanned my CQG terminal, the first big move I see from the overnight session is coffee....up 800 at the time I am writing this. So the market choice was obvious to me - coffee is this a real break out to the upside or a fake out?

From what I am reading there is uncertainty in the market right now if Brazil coffee stocks can help meet the demand or not. The market will eventually explore and find a balance to reflect the "correct" price that meets supply/demand but until then we can see Volatility both ways. I am much more of a chartist than fundamental trader and I am trying to find clues by looking at the daily chart below - and it is not an easy picture to read.

I did not get any of my ALGOs to produce a buy or a sell signal. Price action today did make a new 20 days high ( previous high was made Aug. 1st)

So far I am seeing lower lows and lower highs since the high made Aug. 1st so I will be watching for clues. If this market can close above 200, it may signal the beginning of another strong leg up, failure to break this level may signal a resumption of the recent down trend.

Daily Heikin-Ashi coffee chart for your review below:

Daily Heikin-Ashi Coffee Chart

Daily Heikin-Ashi Coffee Chart

My best trading advice if you are looking at the long side is to buy a vertical call option spread that has a pre defined risk to it. If you need any help, have questions, my team and I will be happy to assist.

Good Trading!

Disclaimer - Trading Futures, Options on Futures, and retail off-Exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.

About Ilan Levy-Mayer Ilan Levy-Mayer has been a commodities broker for over 15 years, and holds an MBA in Finance and Marketing from Hebrew University in Jerusalem. Ilan is currently the Vice President and a Senior Broker at Cannon Trading Company. Take a step in the right direction and contact me today, Toll-Free: 800-454-9572 or direct: +310-859-9572. You may also directly e-mail me, Send mail.

Coffee futures can be one of the more volatile commodities around, especially during different seasons where drought concerns or frost concerns in brazil can really move this market. I remember when I first started trading coffee about 16 years ago and got caught selling call options in a market that started building weather premium...that a was a painful lesson for a beginning commodity broker but as you can see, one that lasted a long time...

So this morning I drove into the office and was thinking which market should I analyze and share with you? Gold seems to be in a tight range and should break out, SP 500 broke the significant 2000 mark...but as scanned my CQG terminal, the first big move I see from the overnight session is coffee....up 800 at the time I am writing this. So the market choice was obvious to me - coffee is this a real break out to the upside or a fake out?

From what I am reading there is uncertainty in the market right now if Brazil coffee stocks can help meet the demand or not. The market will eventually explore and find a balance to reflect the "correct" price that meets supply/demand but until then we can see Volatility both ways. I am much more of a chartist than fundamental trader and I am trying to find clues by looking at the daily chart below - and it is not an easy picture to read.

I did not get any of my ALGOs to produce a buy or a sell signal. Price action today did make a new 20 days high ( previous high was made Aug. 1st)

So far I am seeing lower lows and lower highs since the high made Aug. 1st so I will be watching for clues. If this market can close above 200, it may signal the beginning of another strong leg up, failure to break this level may signal a resumption of the recent down trend.

Daily Heikin-Ashi coffee chart for your review below:

Daily Heikin-Ashi Coffee Chart

Daily Heikin-Ashi Coffee Chart

My best trading advice if you are looking at the long side is to buy a vertical call option spread that has a pre defined risk to it. If you need any help, have questions, my team and I will be happy to assist.

Good Trading!

Disclaimer - Trading Futures, Options on Futures, and retail off-Exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.

About Ilan Levy-Mayer Ilan Levy-Mayer has been a commodities broker for over 15 years, and holds an MBA in Finance and Marketing from Hebrew University in Jerusalem. Ilan is currently the Vice President and a Senior Broker at Cannon Trading Company. Take a step in the right direction and contact me today, Toll-Free: 800-454-9572 or direct: +310-859-9572. You may also directly e-mail me, Send mail.

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