Wow, what an ignition for coffee. This all-important soft has shot up a rough 20% in three days as of today. That’s smoking momentum.
Props to those who are grabbing or grabbed a piece of that squeeze.
However, capital is nervous these days. One can feel it across multiple asset classes and sectors. That general nervousness could cause capital to quickly shift out of coffee and into some other asset bearing a superior portfolio correlation. The move this week feels like a firework as opposed to a rocket headed to the moon.
And fireworks fizzle out. Now maybe this is a legitimate breakout. Destination? Moon. I don’t identify as a commodity market expert in any futures category so there are definitely legitimate fundamentals factors that I’ve spent zero time assessing.
In fact, I don’t identify as an expert in anything. I just like to surf the swells of extreme price action across various sectors and assets classes. Simple as that. Sometimes I win big. Most times I lose small. Just trying to net higher and higher.
Let’s zoom out to a monthly chart of coffee (FinViz Monthly with COT). The blue circles below show every time the big-money, savvy traders get a bit out over their skis against the smart-money commercials.
Over the last 16 years, it would’ve paid to heed this signal more often that not. In 2010, it was a total bust during that commodity super bull coming out of the GFC. But other than that, futures and options would’ve paid out nicely betting on a sharp change in trend.
I’m a simple man. Simple mind. Simple life. Simple trading tactics, and Puts on the JO ETF could provide a solid reward to risk if a reversal is essentially imminent.
The spreads suck, but there’s enough liquidity. If coffee is to see holders start grabbing profits just as fast as they’ve made them, then the zone highlighted in yellow below looks like a logical place to explore opportunities.
Ideally, we’d like to see profit taking tomorrow (Friday 7/23/2021), in order to add a wick to the top of the current weekly candle.
Again, beware of that price action in 2010. And the Great Mother asks you to kindly stop brewing your morning drug with single-use plastic pods.