Coffee Again

[The Baptist]

For those who have missed Coffee Robusta (Liffe's) recent run up, a second chance.

Today was a classic Daily reversal of bearishness when the recent window was sustained and the market was forced back to opening levels. To Candlestickers a Bullish hammer day, given that this market will run and run possibly beyond 6000+ in my view over the next year or so getting in at the 1300 level is hardly a train smash.

Chart attached

 

[TWI]

possibly beyond 6000+

Did I read that right ? I was thinking of dumping some of this.

 

[The Baptist]

Did I read that right ? I was thinking of dumping some of this.

The hammer I outlined may well have been more of a hanging man top as today was a very volatile day with low close, so better opportunities to get back in may still come, Largely medium term/Long I am a bull, next few days likely to be violent and probably down as the window was closed intraday, treat as bullish if no close below window however.

For the naysayers however there is some correlation with Arabica which is a more -Ve chart. A possible spread long rob short arabs?

Good Luck

 

[TWI]

After the big run up in the morning in Robusta Friday everything was looking pretty bullish but when Arabica came in and got offered it was the signal to take get the hell out of London which traders did in their hoard and dumped it right down. Nasty day for seeing open position PnL's evapourate if you weren't quick to sell.
Not sure where from now but would probably agree that support will be close to here and will climb back up, could prove to be good buying opportunity. I am on sidelines now.

 

[The Baptist]

After the big run up in the morning in Robusta Friday everything was looking pretty bullish but when Arabica came in and got offered it was the signal to take get the hell out of London which traders did in their hoard and dumped it right down. Nasty day for seeing open position PnL's evapourate if you weren't quick to sell.
Not sure where from now but would probably agree that support will be close to here and will climb back up, could prove to be good buying opportunity. I am on sidelines now.

I am in agreement and wanting the market to stand its ground , you may have noticed mty stop was 1258 the up close of the big up day, I am looking for strength to return with the window having been closed intraday, but may have to prepare for reduction if there is not an inside day Monday and trade goes below 1257 for an extended period.

Lets see not mad for swinging a big line and relying on the market to show strength at a single technical point.

Fortune to the bold!

 

[jonnyy40]

How often do you get limit days in coffee.Ever since I read the market wizard books I've been put off comodities by the thought of being trapped in a trade.(I presume they still do have limit days)?!

 

[The Kman]

For those who have missed Coffee Robusta (Liffe's) recent run up, a second chance.

Today was a classic Daily reversal of bearishness when the recent window was sustained and the market was forced back to opening levels. To Candlestickers a Bullish hammer day, given that this market will run and run possibly beyond 6000+ in my view over the next year or so getting in at the 1300 level is hardly a train smash.

Chart attached

Robusta market is a contango market, will NOT hold these levels in my opinion. Big harvest in Vietnam next year, the market is anticipating. Short term shortage keeps the market up, for the moment.

 

[The Baptist]

Cafeine Funnymentals

Robusta market is a contango market, will NOT hold these levels in my opinion. Big harvest in Vietnam next year, the market is anticipating. Short term shortage keeps the market up, for the moment.

Interesting Fundamental comment.

I believe the charts say otherwise over the long term although, I still expect there could be some pull backs before the concerted move onwards and upwards, see monthly chart attached. It allows for a pull back just below 1200.

I am sure if your opinion was commonly accepted knowledge amongst insiders, it would be in the price already in my view.

Maybe Vietnams neighbours in Shanghai and beyond are/will acquire an immediate and sinificant apetite for expresso's :cheesy: , they are busy, highly wired worker bee's after all, true slaves to the machine

 

[The Baptist]

Hey Buster is Coffee Robusta Robust?

Ibelieve the expected pullback has begun, I am not looking to get short, but watch for a lower support level to establish with say a Hammer and get long for the big push upwards.

Note the evening star on the monthly chart with open and close just above the window level established on the previously attached Daily chart.

I expect this to be taken out to the downside. expected pivot point before next low could be anywhere between 1170 and 1240, fairly broad I know, more focused range if pushed 1195 - 1230.

Although on the Daily chart we still did not get a close below the daily window, were this to hold for a number more sessions without being broken (I think this is unlikely) this would start to signal strong bullish.

Arabica at lowest close since 27/6/06 not helping, needs to build a base above prev low of 95,85.

Funnily enough following my previous post on Chinese consumption and Funnymentals, I read in this weeks Moneyweek report on softs, that Coffee is being seen as an aspirational western drink and there is take up ( I would be surprised if India is not similar), further to which it takes 6 years to grow tree's to maturity for bean production, this is a long time lag for prices to run up if demand/supply fundamentals experience a shift.

We only need small %'s when talking about 3 or 4 billion people.

Just when you thought the Simpsons's had confirmed there was a Starbucks on every corner new hunting grounds avail themselves.

Monthly evening star chart attached.

 

[The Baptist]

Final downswing afoot

Ibelieve the expected pullback has begun, I am not looking to get short, but watch for a lower support level to establish with say a Hammer and get long for the big push upwards.

Note the evening star on the monthly chart with open and close just above the window level established on the previously attached Daily chart.

I expect this to be taken out to the downside. expected pivot point before next low could be anywhere between 1170 and 1240, fairly broad I know, more focused range if pushed 1195 - 1230.

Although on the Daily chart we still did not get a close below the daily window, were this to hold for a number more sessions without being broken (I think this is unlikely) this would start to signal strong bullish.

Arabica at lowest close since 27/6/06 not helping, needs to build a base above prev low of 95,85.

Funnily enough following my previous post on Chinese consumption and Funnymentals, I read in this weeks Moneyweek report on softs, that Coffee is being seen as an aspirational western drink and there is take up ( I would be surprised if India is not similar), further to which it takes 6 years to grow tree's to maturity for bean production, this is a long time lag for prices to run up if demand/supply fundamentals experience a shift.

We only need small %'s when talking about 3 or 4 billion people.

Just when you thought the Simpsons's had confirmed there was a Starbucks on every corner new hunting grounds avail themselves.

Monthly evening star chart attached.

We had a big move down as aniticpated by my evening star, post of earlier. I do however feel it is possible a few more days or more of down days may occur.

The key interest point for me is the location of the next base level that will consolidate. I do feel that will be one of the best entry points for a long term move that may have isolated a nd infrequent consolidations but in general will be one way up for a substantial time frame.

Keep powder dry, the level that would invalidate my pattern would be 1116 or lower, I do not feel this is likely IMO. the turning point should be in the range as previously indicated previous resistanc now turned support could be 1194 and 1185 although prices could fall as far as 1140 or turn before all of these.

 

[The Baptist]

Rob Vs Arab

We had a big move down as aniticpated by my evening star, post of earlier. I do however feel it is possible a few more days or more of down days may occur.

The key interest point for me is the location of the next base level that will consolidate. I do feel that will be one of the best entry points for a long term move that may have isolated a nd infrequent consolidations but in general will be one way up for a substantial time frame.

Keep powder dry, the level that would invalidate my pattern would be 1116 or lower, I do not feel this is likely IMO. the turning point should be in the range as previously indicated previous resistanc now turned support could be 1194 and 1185 although prices could fall as far as 1140 or turn before all of these.

I have done some comparable analysis on Robusta vs Arabica coffee. It is my view that one appears bullish while the other is close to 12 year lows.

In terms of my bold assertions on the outlook for Robusta, I have looked at the degree of correlation between the two bean types.

In short if Arabica remains in the doldrums, to what extent could it cap Rob's potential upside as an apparent substitute (How obvious is the correlation is the question).

Possibly a slight decouplement between the two beans maybe required, before Arab begins making a more positive chart.

In Explanation of the chart posted, I have put Rob's candles price on the top chart , data since 1982 , which is the begining of my data, through to today in monthly format. There is a simple olive coloured moving average and a Purple relative strength comparable line.

This purple line represents the multiple that Rob trades above arabica, scale on left, price scale right.

The arabica chart bottom also has a moving average in red on it, as you will see this chart looks weak generally at present, while Rob looks like a breakout is due soon.

Lets get the charts up and I will comment further.

 

[The Baptist]

It appears at the begining of my data when Rob touched above $6000 that the multiple between its price and Arabica was 22 times that of the Arab's.

However in 1992 this multiple dropped below 4. That is some range 4X- 22X. It appears at he extremes of pricing the multiples are extreme. IE. when Rob was only 307 in price vs 6000. The multiples were 4X vs 22X.

What can we get from this:

In weak Coffe markets generally, no premium is paid for Rob, However in strong markets Rob claims a far higher multiple.

In short if we expect Softs to go up and Coffee to be among these we should trade Rob not Arab, if historical evidence going back 30 years is deemed sufficient for such a conclusion, I for now are more comfortable than not in this case.

More to Come......

 

[The Baptist]

Initially looking at the Purple line on Robusta, which is the (Rob/Arab price).

The correlation looks pretty high between the two beans, which is a worry for Rob upside while arabica looks weak.

Fundamemtally I was concerned that the coffee market was dictated by conniseur's back then who cared which bean they had and that the new large mass market as attained by Star Bucks etc...nowadays are indifferent, I mean who asks what bean is involved when snatching a decaf on the run?

This would mean Arab is a very substituable bean for robusta if this was so.

But as I examined the chart the purple line mirrors the price very tightly in the decade from '82 - 92, largely a collapsing commodity market, which implies high correlation of relative strength.

However the lines diverge a lot more from the 94 highs up to current, but to the naked eye it still seems the correlation is there but in reduced form....

But...

 

[The Baptist]

.....The next chart challenges this a bit.

I have posted the Robusta price chart with an orange relative strength line. This is robusta divided by the Gold price the ultimate commodity, 'relative value based' benchmark and clearly not a soft but a metal.....

 

[The Baptist]

To me since 1994 -2002 the correlation here is better between Gold and Robusta than with Rob and arab, as the two products share no fundamentals reasons for correlation, we can only assume it is due to general commodity correlation.

Therefore I am considering reducing my correlation concern on the little correlation that there is between the two beans to being the fact that they both form part of a commodity grouping and there is a possible basic Commodity correlation but not a high degree of specific correlation at present. Controversial view to say that the market for each other is not highly correlated, but possibly justifiable.

Remember those multiple ranges (4- 22X). If a Porsche 911 Turbo (£100K) is 4X the cost of a Ford Mondeo (£25K) one day, we would certainly reduce the consumption of Porsches if they became 22X (£550K) the cost of Fords, which implies a greater correlation for two cars in two completley different segments than these two bean types.

Further Gold was at least as well correlated from 2002 to present as Arab was to Robusta, bearing in mind Metals had begun an uptrend that remains in place today, hence the correct shape of the Gold relative valuation line but the falling away of the yellow line as Gold trended up in value in a linear fashion leading to the linear reduction in the line as Robusta cheapened relative to Gold.

While for now a negative day in rob almost certainly sees negativity in the arab trading day. Positive rob days do not consistently deliver strong Arab days and even when in sync the degree in movement is vast.

What to conclude.......

 

[The Baptist]

I think what I hope to say is...

Generally Coffee (Most Softs) have not run relative to the base benchmark of value and inflation hedge Gold.

Continued Gold strength as anticipated by myself is likely to further extend valuation margin.

This could mean that Coffee is (softs too) currently deemed relatively cheap compared to other Commodities certainly metals. They may be due a run, but could remain cheap for a long while in fact other commodities could deflate down to old benchmark levels of valuation, although I bias to Bullishness on this one.

So no trigger yet for any move.

However short term divergence in charts of the two beans need not be feared for awhile,

Although, arab strength would bring strength to the general Coffee market as a whole nad be somewhat helpful. Which if the past is a guideline is likely to stretch the multiple between rob and arab and further improve Rob's upside.

Lets look at rel Val to gold again...

 

[The Baptist]

Super Cycle within current set up?

The extreme 1986 - 1992 Coffee bear market saw Rob drop from $6000 to $307.

This gave what I believe is a highly extreme level of undervaluation against Gold (remember Gold wasn't exactly climbing over this period) marked on the chart by both the price low and coinciding unsurprisingly with the relative valuation low to Gold marked in Grey. (Value at bottome a rebased -2.35

The yellow line currently at -1.1 shows only three years that traded below this level throughout namely 91 - 93.

The subsequent up cycle saw coffee go up over 12X in value in 2 years. To put that move in proprtion a £500 per point spread would yield £1,65 Million. Nice set of 2 hammers in the bottom 4 bars incidentally.

Given the relatively stable range (1460 - 800) since 2002 to present compared to previous swings, the undervaluation index should not be expected to reach the levels of before and by current levels have been below the zero line since the begining of 2003 consistently.

Although the move in and out of undervaluation may not be as violent as the '93 turning point , the potential is still vast, plus there is broadly expected further strength to come from Gold.

As a final technical comment please note the aptly named 'Baptist 123 Flag' since 2005 that has formed with succesively higher lows and lower highs leading to compression pre a possible breakout. Marked in dotted lines.

further witness the larger similar 'Baptist 123Flag' entailing the entire chart marked with the 1' and 2's and 3's. Where this to be a pattern within a pattern and the entire data chart in front of you a 30 year set up, the final breakout would potentially be immense and off the chart, while certainly a macro long term trade, patterns within patterns always interest me immensely, with the short terms patterns Breakout often being the trigger for the Macro move.

Fundamentalists will probable be sceptical at this point as arguements will be: land is not short, more people will farm coffee, long before this point, this may well be the case but given the extended timlines, the world may well be a different place. Climate change other agri strength may make the options broader to all farmers, the organic movement, fair trade, I simply could not say all the possible reasons.

But as mentioned before 6 years for a tree to become productive and asian demand could be huge. It may take awhile to meet excess demand, this is clearly a market for long lumbering supercycles.

Enjoy the chart...

 

[The Baptist]

Arabica Undervalued

...This is a post of the Arabica to Gold relative valuation....

It is only the second time that Arabica has been both below 100 cents (look for the Black dotted line and black Arrows) and the Relative Strength to Gold has gone below -0.06 rebased Rel Val to Gold. (Yellow Line and yellow arrows).

Conclusion: Arabica is either at or not far from an extreme low. This does not necessarily mean it is necessary on the verge of blasting off the last time, which appears unique it spent in around 2 years at its extreme before moving up, but when it did it climbed 285% .

 

[hermittrader01]

So coffee closed above 1500 on friday. What's next?

Looking at 1580-1600 level with a time frame of one month, that would be mid January.



Regards,
HT
HT BLOG

 

[The Baptist]

So coffee closed above 1500 on friday. What's next?

Looking at 1580-1600 level with a time frame of one month, that would be mid January.



Regards,
HT
HT BLOG

Hi There Hermittrader,

You are talking to a Mega-Bull it seems you concur, I feel those levels will be met and surpassed in due course.

Best Wishes