Commodity Update: Will Coffee Futures Jump Above $125?

closed higher by only 0.35% yesterday, but the significant development was that this was nearly $1.70 off intra-day lows at the highest settlement in 14 months. Prices appear very close to rolling over. It will take a penetration of the 8 day MA for confirmation. Currently that level in September is at $104.25. I see prices $4-6 lower in the coming weeks. Inside day in RBOB which was also my chart of the day. I believe this commodity is searching for an interim top as well. A 38.2% Fibonacci retracement drags futures 15 cents lower. Lower trade was rejected in natural gas yesterday, with a settlement back over the 8 day MA and 13 cents off intra-day lows. $3.50 could be stiff support. I’ve yet to make a move for clients here, but those willing to test the waters are advised to have stops just below that level. I’m waiting for a bit more evidence before gaining length for clients.

Stock Indices: Yesterday markeds the 10th consecutive positive session in the S&P with futures within 1.4% of 1700. Until prices close under 1600, the bull train remains on the tracks in my eyes. The Dow closed at fresh closing highs gaining just better than 0.30%. These markets tend to like round numbers so upside targets should be 15500 followed by 16000. It will take a close under 15250 for me to think an interim top has been established.

Metals: Gold closed above its 20 day MA yesterday, for the first time since 6/6 when prices were 10% higher than current trade. For the upward momentum to continue we will need to see a penetration of the down sloping tend line that has capped upside since April. That lid comes in just under $1300/ounce in August futures. In terms of Fibonacci levels, we should see sellers at $1305 and $1340 if prices are lifted to those levels. I would not rule out a trade to the 40 day MA, currently at $1329. Silver showed a mild gain and was able to maintain its 20 day MA. September will need to remain above $19.30/19.40 and we will need to see the $.25 hurdle overcome. This level has capped upside on all attempts since breaking below that level on 6/20. The 40 day MA comes in 3 cents under $21. On a trade near or above that level in the next few days look to unload September back ratio spreads.

Softs: Cocoa gave up 0.67% to trade in the red for the first time in five sessions. The 20 day MA should support pullbacks at 2187 as my upside target remains the 50 day MA at 2266 and beyond. Sugar closed in the green but for only the third time in the last twelve sessions. Will 16 cents prove to be the line in the sand? OJ resumed its uptrend with a slight gain after following through on last week’s 2.32% appreciation. Buy dips that maintain $134. A 61.8% Fibonacci retracement of the most recent leg puts September futures at $144. Coffee gained 3.22% getting back most of Friday’s losses. Will Tuesday be the day futures jump above $125? On that I would expect to see a swift move to $130 in the September contract.

Treasuries: 30-yr bonds gained nearly 0.50% to close just under the down sloping trend line mentioned in previous posts back above the 9 day MA. Overnight we are seeing follow through as futures approach the next hurdle…the 20 day MA at 135’2. I’m expecting a test of 136’00 before the Uncle Ben speaks mid-week. Prior to the overnight market upside, the last few days had been capped in 10-yr notes at the 20 day MA, in September at 126’11.5. Look for a probe of 127’00 in the coming session. Eurodollar futures are 35 tics for their recent lows and above the 9 and 20 day MAs. I open a spike to the 38.2 or 50% Fibonacci levels in the coming days to weeks. These levels in the March 16’ contract are 98.42 and 98.56 respectively. My favored play remains short futures and simultaneously buying calls 1:1.

Livestock: August live cattle were higher by 0.49% closing back above the 9 day MA for the first time since penetrating that pivot point last week. Lighten up on bearish trades and tighten stops just above the recent highs on remain open positions. Yesterday, the real mover in this complex was feeder cattle gapping higher and closing up by 1.68% at fresh 3 month highs. The news I’m reading is the surge in feeders was attributed to the fact that corn prices are headed lower and very possibly sharply lower according to some big Ag players. Lean hogs closed in the green but well off their highs and under the 9 day MA, in August at 95.80. Some clients are in bearish trades, short futures, and they sold 96 puts against their futures. I will need to evaluate the next few days in order to decide what to do. Stay tuned.

Grains: Corn lost 1.13% yesterday and is lower by 4.4% the last two days. The 9 day MA which had served as support has now shifted from the floor to the ceiling, in the December contract at $5.09/bushel. Any traders probing longs in recent sessions should have been stopped at a loss on a penetration of that level. Do not rule out fresh lows. Best to stand aside for now. Soybeans found mild support at the 50 day MA and on the 0.52% gain were able to retake the 9 day MA. Until November gets below $12.45 or above $12.80 stand aside. Wheat is nearly 25 cents off the recent highs that were rejected at the 50 day MA last week. Though prices closed under their 9 day MA, I like scaling into bullish trade near current levels…within 15-20 cents of recent lows. My suggest strategy is long futures while simultaneously selling $7 calls in December 1:1.

Currencies: After the gap lower last week, the US dollar is still trying to find its bearings, trading higher the last three sessions but well off the highs. Yesterday’s highs were within 2 tics of filling the gap. Will that be close enough before downside action resumes? I am getting no clear signal in the FX sector so keep size small when navigating these choppy waters. Continue to buy dips in the loonie but unless we see a total metals meltdown again or energy prices fall apart I think the lows are in. In other words the closer one can buy to .9400 cents the better.

Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. 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 than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.