Softs Market Review for Sept 19, 2012

Cocoa:

First Notice:  Dec: 16Nov

Options Last Trade: Nov: 05Oct; Dec: 02Nov
18Sep
Dec Support/Resistance:
2833 Oct 2011 high.
2757: +2 STD above the 21-day moving average
2705: 07Sep high.
2600: Late Jan12 peaking action
2590: Inflection level dating to 8/28.
2557: 21-day moving average
2501: 13Aug high
2366: 24Aug low.
2357: -2STD below the 21-day moving average.
2357: Rising trend line from 04June lows.
2322: 200-day moving average.

2035 area: Major support. Horizontal trend line. 12/12/11 low and 6/1 and 6/4 low.
Comment: As we noted last week, the rising 21-day moving average offered support to yesterday’s decline. However, additional weakness resulted in this level and the 2590 inflection level failing to hold the Cocoa up.
Trend, momentum, ROC and RSI all distinctly point to likely lower action. However, the Volume and Open interest seem to peaking as well. This may indicate Cocoa is coming to the end of this phase of the bull run and may be setting up for additional higher action. Watch the action if our RSI shows bottoming action.
Seasonal Snapshot:  All three patterns are in a negative pattern until 19Sep.
Coffee: 

First Notice: Dec:21Nov

Options Last Trade:  Nov: 12Oct; Dec: 09Nov
18Sep
Dec Support/Resistance: Profit-taking was blamed for today’s sell off.
194.85: 11July high.
193.65: 200-day moving average.
191.95: 19July settlement (recent settlement high)
182.05: +2STD above the 21-day moving average.
168.30: 21-day moving average
156.55: 06Sep low.
154.60: -2STD below 21-day moving average
Comment: Yesterday, the rising +2STD Bollinger Band capped the recent rise. Additionally with the failure to make new highs and then settling materially lower, we see the market was Overbought, and we may see some consolidation at these lower levels. With no extension lower, this market sets up for another push higher.
Watch the rising 21-day moving average, which aligns with the previous set of highs before last week’s charge higher for support. If the market falls to and holds there, this gives further evidence the Coffee is poising for another leg higher.
Hedging for delivery is likely to be a cash intensive business unless some sort of long option strategy is implemented. Call or email us for information on how to implement.
Seasonal Snapshot: All 3 patterns head generally higher until month end.
Cotton:
First Notice: Oct: 24Sep; Dec: 26Nov
Options Last Trade: Oct: 14Sep; Nov: 19Oct; Dec: 09Nov
18Sep
Dec Support/Resistance (Dec):
83.04: Dec 2011 low: old support/new resistance?
82.12: 200-day moving average.
77.89: +2STD above 21-day moving average.
78.70: Rising trend line from the 19June high through 09Aug & 21Aug highs.   Forms the upper boundary of a rising wedge.
77.00-77.25: Resistance range that has held since 8/9.
75.80: 21-day moving average.
75.07: Rising Trend line drawn from the 6/4 low through the 6/28 low. Forms the lower boundary of a rising wedge.
73.70: -2STD below the 21-day moving average.
Comment:  Cotton rallied modestly, seemingly in the face of bearish commodity pressure AND the effects of yesterday’s Crop progress improvement. One comment that tried to nail it down was the possibility of Chinese purchases for their reserves. Other than the Middle East (Egyptian cotton) turmoil and a story about Louis Dreyfus losing one of their top cotton traders, we don’t see any other pipeline issues that would materially add a bid this market.
This markets technicals are a mixed bag. Trend and Momentum are still falling, but there is a negative shift on. RSI has risen from recent Oversold levels and is now above 50 and rising. Today’s Volume does not validate the move as it dropped.
With the exception of a brief period probing below, the Dec contract is back inside rising trend line support from the 04June lows. The case could be made for this rising trend line to form the lower boundary of a rising wedge. Bearish confirmation is needed soon, but this would project a substantial move lower. Perhaps by 20 or more cents to the low 50’s

Overhead resistance lies at the upper boundary of the rising wedge (78.70).

Seasonal Snapshot:  All three patterns are in generally higher biases going into topping action in late September.

 

Sugar:
First Notice: Oct: 01Oct; Mar: 01Mar
Options Last Trade: Oct: 17Sep; Nov: 15Oct; Dec: 15Nov
18Sep
Oct Support/Resistance:
24.00: 23July high
22.09: 200-day moving average.
20.70: 20Aug high.
20.36: +2STD above 21-day moving average
20.50: Old resistance & where Sugar fell to & bounced for a short time in early May
19.65: 21-day moving average.
19.24: 04June low
18.94: -2 STD below 21-day moving average.
18.81: 06Sep low.
16.88: Nov 2010 low.
Comment:  Today’s material negative action seems to have negated our view of a possible inverse Head & Shoulders formation. At this juncture, it appears a failure to head higher leaves us with 2 of the last 3 sessions with significant negative action on materially higher volume days. This points to a shift toward lower action ahead. Trend seems to have just topped. Momentum seems to have peaked in its acceleration and RSI is now falling and NOT Overbought. If Energies stay under pressure, look for more negative bias.
 Support remains at the -2STD below the 21-day moving average.
Seasonal Snapshot: All three patterns are in a modest downward bias until mid Sep.
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Softs Review on Feb 10th

The new high price of 254.05 was established on what was thought to have been buying by funds in NY coffee. This lifted coffee prices as KCH heads into option expiration today and while prices have eased a bit this morning, the potential for fireworks remains. I am standing aside till Monday. Cotton and Sugar remain quite volatile, even in lieu of recent rule changes by ICE made in an effort to tone down the severe price action. Once you’ve opened Pandora’s box…

At first on Wednesday Cotton prices responded in a sideways to lower fashion once the USDA crop numbers were reported. As the day wore on however, cotton prices jumped, resulting in new contract highs among several months. This morning cotton prices are adding to those gains and my earlier prediction that cotton values will seek $2.00 is now just around the corner. Friday brings option expiration for March. What has been most interesting to see has been the strength shown by next year’s crop.

Coffee option expiration will dominate action today. Will we see the 245 strike visited? The 255 strike perhaps? Or maybe, just maybe the 260? Or will things settle down right in the middle at 250? Regardless, be ready for some fireworks. Personally, I suspect to see a shot at the 245, but who knows? Anything can happen and often does. Or will it be 260? Stay tuned.

Sugar prices move around every day in wild fashion. I cannot make sense of some of these moves and attribute them to computers trading on their own. I think ultimately the fundamentals will take hold, but for now, look for more wild days ahead.

I favor the long side of Cocoa, as I do all the soft markets. Holding long July call spreads and will seek to add on dips. Looking for a close over 3300 to stimulate things, but the upside won’t heat up until either fresh news comes out of Ivory coast, or technically, we close above 3335 in CCH.

Jurgens H. Bauer, Softs Guru

Soft Review on December 20th

By Jurgens H. Bauer

As the year of 2010 comes to an end I am of the opinion that we haven’t seen anything yet. Sure Cotton, Sugar and Coffee have had huge moves up this year, but I expect even more fireworks in 2011. Coffee broke into new high ground on Friday, and Sugar took off with another big gain, Cotton (at least the March contract) moved limit, and all look prepared for another boost upward. Coffee could pop to $2.50-$3.00, even though my objective of $2.30 is now within easy reach, I think it entirely possible we could see $2.50 soon, maybe even this week.  In Cotton, the March/May spread suggests that demand is still great right now. Physical cotton is needed and needed sooner than later. So too sugar, whose weekly chart has me thinking that a much bigger move remains in the cards. And Cocoa, which I perceive as being undervalued in the complex, may be providing a superior buying opportunity with its recent pullback as reaction to Ivory Coast tensions are predicted to behave.

The downside will come (and I believe it will be vicious when it does), but that time is not now. Now looks to me like a time for bull markets. All in all it has been a big year of gains with several records established in 2010.Yet, I am willing to bet we haven’t seen the end of higher prices among the soft complex and feel 2011 may be another big plus year.

For this holiday shortened week, covered calls may be a worthwhile strategy. Certainly outright call options may appeal for the limited risk factor, but premiums are expensive and costly for a reason. Volatility is a measure of the market’s predictability and while I may predict higher prices on the horizon, attracting a willing seller comes at a larger price. Call spreads may be another choice, but with volatility so high and semi-vacation time with the holidays over the next couple of weeks, selling covered calls is my preference. Since selling covered calls is akin to selling synthetic puts, those with lower risk tolerance levels ought to consider buying downside puts as coverage. Just remember, they aren’t cheap and tend to get hurt by decreasing volatility should prices move down.

The Softs Review for December 6th, 2010

It is becoming more and more obvious that I can no longer look at the cotton market (or any of the Soft markets for that matter) in the same way I used to. I feel that the way things are going all it takes is two consecutive days in one direction to signal that the tide has changed and when it changes the tsunami begins and the tide overwhelms. I believe that we are in the midst of a huge shift in the financial world, which stems from the ongoing breakdown of traditional currencies. The dollar still gets used as a safe haven during times of economic uncertainty and fear, but that confidence is being challenged. Currencies have been used to determine value but new problems are arising destroying those traditional relationships. In other words the full impact of the Fed’s QE2 move has yet to be felt in my opinion.

The value of commodities in relation to one another is another method of pricing. Pricing cotton in terms of other commodities like gold, silver, copper, crude oil or even soybeans, wheat and corn, and you get a whole different perspective on things. Yes, cotton prices are at record highs, but not as much so when compared to relative value in terms of relationship with other commodities. The soft complex may have been simply been playing catch up with them. In other words, while cotton prices have more or less doubled, the market has also seen “silver go up four-fold, gold three-fold, copper and crude oil more than two-fold, and corn, soybeans and wheat double in price.” I suspect this trend will continue as more money makes its way into commodities.

What to expect this week? I expect cocoa to continue to and try to advance, especially as long as tensions in Ivory Coast remain, as that situation prevents the normal flow of cocoa exports. But even independent of that Cocoa seems undervalued when compared to other softs like sugar. Cotton crop report will likely make the market nervous, but I expect the strong physical market to continue to show up in export demand. The bigger news may soon start to focus on shipping all those exports. Logistics are starting to have a play as can we ship the quantities in timely fashion? Either way the key will be the cash market. Importers are scrambling to lock up remaining supplies before they run out altogether, which is underpinning prices.

All this makes me nervous about being short, but I opened this column with “two consecutive days in one direction to signal that the tide has changed.”

Softs Review for Nov 29, 2010

This is a time of year when traders might best be apt to look to a winding down of the year’s activity and for prices to consolidate. And while this may prove true for some markets, with fund managers no longer actively chasing values, the macro picture still seems to have the attention of investors this past month. This has been especially true with the dollar moving up contrary to calls for its demise due to Fed action and the QE2. So with that in mind look for the soft markets to remain on the defensive, but be aware that price spikes are still possible.

Cotton is still very much in demand, but prices have been all over the place this past month. I think between now and year’s end we’ll learn what value to place on it. As the year comes to an end Coffee has typically shown a strong seasonal tendency to move higher during this next month, which can be seen on this chart.
http://www.seasonalcharts.com/future_farmprodukte_coffee.html I still tend to favor coffee from the long side, just know that sharp and swift moves can knock you out of positions. Sugar is the one market most apt to consolidate, but in a fairly wide range, the key will be if the range between 25.5 or 30 cents gets broken. As for cocoa, I still feel there is merit to the 2750-2950 range continuing.