Best Thread COFFEE - The next big bull?

[josbarr]

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Hi Guys

I have just read the whole thread over the last few days after starting to get interested in Spreads.
I must say your analysis of the whole coffee situation (Gene, DaveT) has been pretty impressive.
I think anyone wanting to learn how to make an informed choice on when and where to enter a trade based on fundementals and charts could do a lot worse than study your careful analysis of the coffee futures.

I would have loved to have joined you in the trade but am only just getting organised.

I would like a bit of help in the nuts & bolts of trading futures.
As I said I am mainly looking at trdaing Commodity Spreads to start with as I have been advised they are less risky.

I would like to know the best place to get charts for commodities, and a good broker where I can actually trade contracts.

I wonder DaveT do you trade electronically or use a telephone based broker?

I know you provided a list of brokers for our Spanish friend but would like to know which is the best one for a UK trader.

thanks for your help and keep up the excellant posts.

 

[gene]

When does the Sao Paulo market open, this week? I don't know if I want to be long this market when they come back. There may be a lot of origin selling. I'm considering shorting the market for a day or two, depending how things look at that time.

 

[DaveT]

monarch -

I use Barchart or FutureSource for charting and technical studies.

Barchart is subscription-based, but FutureSource does have a free premium charts facility.

At the moment I mainly execute position/swing trades via IG Index (spread-bet), but have one or two back-up facilities with other brokers/SB's. I sometimes deal electronically, but if I am trading a deferred month I usually have to telephone to get a price and execute the trade.

I think 2 good direct futures brokers in the UK are :

www.sucden.co.uk (SUCDEN)
www.bfl.co.uk (BERKELEY FUTURES)


Gene - I think Sao Paulo opens half-day Wednesday (I'll have to check to confirm) Thursday and Friday will trade as normal.

don't know about heavy origin selling at this juncture - the general story from the producers is one of withholding of supplies , in the view that even higher prices are coming his year. Obviously if this market gets too overbought, there WILL be a heavy correction - but personally I would only trade this market from the LONG side henceforth - I'm simply looking for a place to take some profits, then reenter LONGS at the trough.

 

[gene]

I would only trade this market from the LONG side henceforth - I'm simply looking for a place to take some profits, then reenter LONGS at the trough.

Yeah, that's usually the way I do it in a trending market, but once in a while I get greedy. When/if the time comes to decide whether to short, I'll most likely chicken out.

 

[gene]

15 minute chart, here.
This is where I pounded on the "take the money and run" button.
Now, I guess it will REALLY take off.

 

[gene]

Maybe I should articulate my thoughts more clearly:
(The last bar on the chart, below, is today's, so far.)
*It looks like a short-term top may be starting to form. (I can't put my finger on Why it looks that way to me...just familiar patterns, I guess.)
*Looking back, Coffee has a history of retracing larger day-moves for a day or two.
*Sao Paulo is opening tomorrow after a few days off, and I'm afraid of what tomorrow may bring.
*Loking at the 15 minute chart, above, it just looked like a pretty good time to step off.

edit: After reading my "more clearly articulated thoughts", I realize that I trade largely by conditioned instinct!

 

[DaveT]

New contract highs again today in May Coffee - reached 11725 intraday.

Closed at 11650.

My 1st target for this position trade remains at 12200-12400 MAY.

Seasonal strength likely to continue until later this month.

IMO.

 

[DaveT]

The monthly Coffee chart is now looking EXCEPTIONALLY STRONG.

The 1999 high of 14500 is an obvious initial resistance point.

Beyond that, 18000-20000 looks acheivable (later this year).

This is the Bull market we have been waiting 6-7 years for IMO.

 

[monarch]

Hi DaveT

Thanks for previous tips. Looking good for you and coffee

Can you say where you get yearly charts to study commodities back over past years.
Futuresource etc seem to only show daily, weekly or monthly not years.

Thanks
May your coffee always be strong.

Nick

 

[DaveT]

monarch -

You can access historical DAILY charts for past years (as far back as 1970-73) at:

www.oio.com

I do not have access to YEARLY charts, per se. (ie., where 1 bar = 1 year)

 

[monarch]

thanks DaveT
Once again very helpful.
How about a thread on Soybean Meal which I am watching for an upturn thru to July.
But hey I could be completely wrong.

Nick

 

[jklondon]

"impact of significant coffee bull run on coffee retailers"

Thoughts on this? E.g impact on Starbucks share price?

My thinking

The initial thinking is that if the price of coffee goes up then this will be passed onto the consumer (or at least a % of this).

However - coffee is considered an in-elastic commodity in general. So if prices go up 10% the %change_in_demand < 10%. i.e this could result in a significant boost in revenues for Starbucks if they do put up prices.

Note the fact demand is in-elastic is due to the fact that there are limited substitutes to coffee - tea is the obvious one but its not a perfect substitute!

 

[gene]

Hmmm....Now, what might I be thinking...?

 

[roguetrader]

"impact of significant coffee bull run on coffee retailers"

Thoughts on this? E.g impact on Starbucks share price?

My thinking

The initial thinking is that if the price of coffee goes up then this will be passed onto the consumer (or at least a % of this).

Possible sqeeze on margins? As they try not to pass all the cost along so as not to hurt demand. Maybe?

 

[DaveT]

New highs again today in May Coffee- - we are now above 12000 - as I indicated we would be by February.

The seasonal chart shows a February rally, with a probable seasonal high Late-Feb.

May initial target for MAY NY Coffee of 12200-12400 is approaching. I will be adding JULY LONGS to my position on the next major correction.

I see a consolidation period in March (early March) before the next STRONG SEASONAL move up in April and May. This move could take us to 14600-15000 at least.

IMO.

 

[DaveT]

COFFEE AT MONTHLY RESISTANCE
--------------------------------------------------

The Monthly LOG chart shows NY Coffee has hit a resistance level at 11900 basis the nearby futures - this was the July 2000 high made on the light freeze/scare during that month.

As I indicated previously, we are due for a seasonal high in mid-late February, so a correction may be in the offing. This may still only be a relatively shallow correction, as the strongly bullish fundamentals for 2005 underpin this bull market.

After such a correction, the next strong seasonal updraft should begin Mid-Late March/early April, and continue to Late-May/Early June. This could be a very strong move up, IMO. A substantial weather premuim should be built into the market during this time frame -

- maybe taking the nearby contract to 14600-15000 - the next monthly resistance level shown on the chart below.

I will be looking to add JULY LONGS to my position on the next correction, and holding/adding during this strong bull move I see coming from April-June. (I have made 2200 points on my May longs thus far)

 

[DaveT]

On the MAY (NY) Coffee daily LOG chart,

- there are two support/resistance trendlines which could hold in the event of a short-term correction.

The most important one is the MAJOR TRENDLINE from the OCt/Nov 2004 lows. This could give major support at around 11300-11500 over the next couple of weeks. (assuming a correction occurs)

However, if the market respects support at the upper line (shown) we would go no lower tthan 11750 (approx)

After any short-term correction, I expect the uptrend to continue and accelerate into April May. Eventual target = 14600-15000 (next level of long-term resistance)

To summarise :

S/R Line support at 11750.

Major Trendline Support at 11300-11500 (approx)

 

[gene]

I believe I'll turn my attention away from coffee, now. There is still some more to this rally, but considering the margin requirements, there is now more bang for the buck elsewhere. I'm looking to short hogs for a while, then a little later on, I'll be buying corn or wheat. I think it will take another 2 or 3 months for those grains to complete their bottoming patterns.

 

[DaveT]

Gene -

I agree that on Corn and Wheat could be good buys in 2-3 months, for a rally through to late 2005.

However, I still believe that COFFEE presents the best trading opportunities in the commodities in the mean time (For swing/position trades) . The trend is now firmly established, but not mature, IMO.

If you look at the monthly chart, we are still in the lower percentile of the 30-year range, and with supplies tighening, any threat of drought/frost in Brazil this year could send prices shooting upwards to aprroach $1.70 to $2.00+.

As it is, project 14600-15000 for the May 2005 contract.

Remember the fundamentals. We have estimated STOCKS-TO-USE ratio at 16% for 2005/6 - this is the LOWEST IN OVER 23 years. Consumtion will outstrip production for the 2nd of 3 years, and the USA has just rejoined the International Coffee Organisation.

Inthe very short-term, we need a correction (of 4-7 cents, say), but after rebasing from there we should continue UPWARDS in March, April and May towards 15000, I believe.

The small Spec COT levels show that the public is hardly participating in this bull market now. It is between the funds (LONG) and the commercials (SHORT). Any forced short-covering by the latter should elicit vertical price moves, down the road.

For me, (with good entry timing and money/risk management), Coffee is the place to be for the next several months.

However, I use SB and I am a position trader.

 

[The Kman]

What is the stock to use ration? what does it reflects?