Week Dec 20th - New Rule 2: 1 Bull pattern in the direction of the trend trumps 2 bear patterns against the trend.

Did I say sell last week?  I think I said, 'sell, sell, sell... with a tight stop'.  With Brazilians doing little selling for tax reasons, funds were able to to elect several buy stops into little resting offers - end result, big week closing at the highs (highest since June 97).

As for this weeks title - bullish wedge pattern proved the correct interpretation. And the moral is, don't trade against the trend.  That fits into rule 1: If it looks like a duck, walks like a duck, and quacks like a duck, it must be a duck.  Still, I would not be buying this now and at this level. If you are wrong, there will be a better sell opportunity, if you are right, there will be a better buy opportunity.

* All weekly bearish candles have been negated.
* Bearish divergence on the weekly Slow Stochastic still active, but one more week like this and that too will be negated.

As I have said all along, I still expect us to see substantial new highs, but I have also been expecting a substantial pull back.  Thus far, not materializing.  Elliot interpretation:  This would be the impulsive 3rd wave (ending soon), then the corrective 4th with a large 5th up sometime in the next year.

Conclusion: I don't see it above 233/235 this year and despite everything, still expect a substantial correction before the big rally next year.

60 Min - reversing bear targets (until the become clear again) and focusing on bullish wedge.  Friday's high hit two nice targets.  Failure to move further could mark that as the intermediate top.  Otherwise, nice targets between 230 and 235.

Weekly - I can't find any period in the last 20 years where the Slow % D line of hte slow stochastic has stayed so consistently above or at the 80 line; not even frost years.

OI graphs - they are marking extremes and indicating at least an intermediate top.

Net funds - still room, but high.  I think the window dressing at the end of the year may have actually been, take the path of least resistance - push it up and book your unrealized profits at substantial new highs.

Week Dec 13th - Sell, sell, sell....

 .... is what I want to say, but I admit it's becoming harder.  However, had you sold into the 213 and bot into the 200 area as recommended last week, you'd be very happy right now.  So, do you sell again into 213? I'm going to argue yes, but with a tight stop looking to sell again into 220. I think if you try playing this three times from the short side, you will be rewarded handsomely - tight stops.

Who is going to buy this?  Short funds have a record small short position (read; no more short covering).  While there still remains industry buying, I don't see them doing it aggressively.  So, that remains small and large spec and trade. All are at least a bit long and would have to extend their positions substantially, which I think sets up a short term top (ie, if they do, it will be too much and we will get rapid liquidation into little buying).
Fund Open Interest - raw data * funds have never held such a small short position.

So, while I admit the markets ability to hold above 200 is impresssive, I still see the better reward/risk on the sell.

Bull:
* Daily slow sto is offering a buy signal.
* SP500 is pushing up and China did not raise rates - bullish commodities.
* Holding 200.
* Brazilian farmers not selling before next year

Bear
* Weekly bearish candles
* Monthly bearish candles
* End of year window dressing
* Weekly slow stochastic over bought and showing bearish divergence.
* My Open Interest indicators are screaming "sell".

60 Min - hit target on upside, bouncing of downsloping line. Still holds open this as a bullish wedge. Even if it breaks, the choppy nature of this makes it look more corrective.

Point and Figure - captures the trend well, removes some of the noise and shows where support has to hold. Caps the near term at ard 230.

Proprietary Indicator - capping any upside and indicating near a top.

Proprietary Indicator - also maxing out.

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Week Dec 6th - Classic bullish wedge, classic H&S formation or nice Elliot ABC correction down?....

...one bull vs two bears: But one bull in the direction of the trend. Weekly and monthly bearish candles still in play and zero volume last week, however, mkt easily held the 2.00 level.
Conclusion: i'm bearish, but probably a buy near 2.00 and a sell into the 2.13 area with a tight stop and possible new short near 2.20.  A definite sell beneath 198.65/35.

* Daily closing beneath 10 and 20 day MAs
* Further sell confirmation on daily Slow Stochastic
* UBS to liquidate 9,000 lots for index fund
* Brazilian farmers not likely to sell before next year due to tax incentives.


60 Min - possible bullish wedge, but I am still looking more at an elliot ABC correction down.

Key proprietary indicator - broke support (held for 8 weeks).

Euro/Daily - broke key support but found support at 1x1 multiple of first wave down.  Leave open this as corrective with invalidation given on a close above 134.47.  However, still held back by 10 and 20 MAs. Any indication that up trend has resumed will be bullish coffee.

Weekly - bearish shooting star and engulfing candles.  Last week was an indisde week. Slow Stochastic with bearish divergence.

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Week Nov 29th - OI update - N.Korea's "rain of furious hellfire"....

....has yet to materialize in coffee or anywhere for that matter, but Europe's woes have taken it's toll its currency and that has put pressure on coffee.  As per last night's Euro graph, we have closed solidly below the channel line and support.  This does not bode well for coffee, but nor does it preclude any short-term rally.  Open interest didn't offer any surprises but it makes me a little more sure we will not see a new high this year, but also a little less sure see exaggerated downside (155?). New high this year? Back to only 20 %.  Big new high next year (270 +)? 90 %.  Do we see 170 before 240?  60% chance and increasing.

Note: very surprised how many people are super bullish.

Bear graphs

Monthly - if tomorrow closes close to this, it will be a very bearish evening star candle.

Weekly - lots of stair step support on the way down.
* bearish divergence on slow stochastic
* 2 weeks ago, bearish shooting star still holding high in place.
* Last weeks bearish engulfing pattern/dark cloud cover - very bearish since it encompasses  the high and the close
* open interest steadily declining

60 Min - after break, found resistance at trend line.  Still, I expect this to be choppy and wouldnt be surprised at more attempts up.
* i dont buy this head and shoulders pattern

Open interest indicator.- makes me think upside it at best limited in the short term.

Week Nov 29h -

Open Interest comes out tomorrow, but a quick update.

Tough to read too much into Friday's fall off given the volume, but my single worst trade (long) was Thanksgiving 2008 with a similar low volume fall that precipitated a 5 day fall off to a 3 year low.  Lots to be weary of these days - I'll elaborate tomorrow.

Notable: Weekly chart showing a bearish engulfing pattern (key reversal) on further slow stochastic divergence and monthly to post a very bearish evening star.


60 Min Chart - cleaned up the chart and am now building bear targets. The bull counter argument is that this is a wedge pattern pointing to substantial upside.  Im still in the only 30 % chance we see a new high this year (but 90 % we see one next year).

Euro - evening started off with a big move up in reaction to the Irish bail out, but has come off sharply.  Friday's close below the 133.37 level was key, but needs further confirmation.  All quite bearish coffee.

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Week Nov 22nd - Tuesday update

12 Cent fall from Sunday - I'm right?  10 cent rise from today's low - Im wrong ? Answer, both are wrong.  The pattern off of the 213 high was a perfect ABC, 1:1 correction (Today's low was an exact 1 multiple of the first leg). Unfortunately, it still leaves open the upside.  But, I have not changed my odds on a new high:  still 30%. All bets off with a close above 216.  If this plays out as a correction with further downside, market should not get too into the 216 area.

Tradeflow: Looking for that 216 level.   Still recommend the short call vs the 190/180 puts spread.

Euro below 133.36 should strengthen the downside argument.

Week Nov 22nd - "...real money is made by the waitin' and not the tradin'..."

Mkt held the 212 area on both Thursday and Friday, but given strong Euro and SP500 futures, would expect to break that tomorrow morning, generating some more short covering; however, not too much since the fund short position is at near historic lows (short 3,808 as per Friday's disaggregated OI report).

Still, in general, I am sticking with the short-term bear opinion; 30 % chance we see a new high this year.  If we get in corrective mode soon, I expect we can surprise on the downside - 170 to 160 even. 60 cents from high and yet still 30 cents above this years early range.

Trade: still the H11 190/180 put spread financed by the H11 270 call.  Patience on this one is generating 1 to 2 cents premium.

Bull argument:
* Trend is up
* Buckets of money have/had been pouring into commodities.
* We have basically held the 198.65 level - leaves open another wave up.
* Fund net position is not too exaggerated - at 29,878.  2008 high was near 55 k.
* Washed shortage being aggravated by weather problems in CentAm and Asia.
* ICE stocks dropping at big clips.
* Elliot Wave showing big upside over next year and half.
* Who will aggressively sell this?

Bear
* Trend is up, but we are well oversold at 13 year highs.
* Daily and Weekly slow stochastic sells - Weekly showing negative divergence.
* Candles: Weekly still with bearish shooting star and daily still with three black crows.
* Mkt has hit all bull targets and now seems to pointing towards corrective targets.
* Elliot Wave suggesting we need a corrective 4th wave.
* Definitive shortage, but we should see more selling pressure coming in next weeks/months as more production comes to market. (Brazil probably ard 60 % sold).
* Open Interest indicators pointing down.
* OI has dropped nearly 20 k in 8 trading days.
* Who will buy this? Little short covering from funds left, roasters were forced to buy into FND.

Graphs
Tradeflow - if this rally is corrective, then it should not get beyond the high and may only point as high as 216

60 Min - don't want to see a new high, but if we do, I don't expect it above 226. So far, these targets have worked well; strengthens the long term bull argument, but also makes a short-term swing play down interesting.

Weekly - still looking for the question mark, but long term is up - big new highs next year.

Proprietary - getting the big reversal I was looking for.  Looking for confirmation this week.

Proprietary - confirming downside.

Week Nov 15th - Thursday Update

As expected in Sunday's post, Mkt has had its gasp up into exactly 212.00.  Last gasp? Not sure.  Yesterday I thought there was a 20 % chance for a new high this year.  Today, I still see it only as 30 % - basically due to the generally positive sentiment.  Still, The move off of the high as a nice 5 wave decline with an ending diagonal finishing just above the 198.65 break out a few weeks ago (bullish).  The rest of the move has been another 5 wave move up - which makes me think there may still be some more upside in the next few weeks.  But, again,  I still do not see a new high.

Still like the put spread combo with short calls; 270 call vs 190/180 put spread.

Tradflow - finished right at the 211.95/ resistance and near the 62 % retracement.
The fall was more impulsive than this rise and more volume with the decline.
OI has fallen from 150 k to 130 k in 7 trading days.
Weekly and daily slow stochastic sell signals.

.... let's see tomorrow's OI report.

Week Nov 15th - OI update

Mkt did put in a nice performance today as expected, but needed/needs to get through 209.00 (vs H11).

Delayed open interest report was a little mixed for me.  While it may support a little upside in the short-term, I am expecting a sell off shortly. Report vs last Tuesday (Dec @ 217.05) vs. today at 206 is hard to compare.   I am expecting Friday's to look much more bearish. Some of my indicators are moving into extreme over-bought readings (these take a while to develop and why I like them - less whipsaw).

I would recommend initiating a short position if you have not already.  Given the volatility, some combination of short calls, long puts would be a low risk strategy. Again, the 270/190/180, short call vs put spread might be interesting.  As mentioned yesterday, I still expect one last gasp up this week; so there may be another good opportunity tomorrow or Wednesday.

Tradeflow ( H11 )- was expecting us to get into the grey rectangle today.  Tomorrow needs to.

L/S Index - I think the 2008 levels were a bit of an anomaly and that current levels indicate a sell opportunity.

Other index - extreme and hooking back = selling opportunity.

Ratio - would like to see this indicator hooking up too before initiating a short.  However, given market after Tuesday, I expect it will.

Note: GCA Stocks fell 319 k. Should be supportive tomorrow.

Week Nov 15th - "Carrot or three course meal?"

I think many people - myself included - were expecting the funds, after reaching the 218 high, to dangle a "carrot" in front of the roasters; that carrot being a little dip from the high into the 212 area, then yank it away (buy it back up), creating panic buying into FND.  So far, they have given them a three course meal in the form of 3 consecutive down days with Dec settling at 200.45. Still, I think we do get that last dash buying spree, maybe getting us back into the 212 area again, but not too much higher. As noted in Wednesday's update, London was an ugly key with considerable follow through selling after failing to breach the May 2008 support/resistance of 2096. That combined with massive negative sentiment (sugar giving up 23 % at one pt) made in nearly impossible for further advance.  Coffee then broke the 209.25 and fell beneath 200.

Some trade house did a similar trade to the one I recommended last week; sell overhead calls and buy a put spread.  Their strategy was a H11 240 call vs 185/165 put spread.  A bit aggressive for me and I think overshooting the downside. I still like the 280/190/180 combination; low risk/high probability.

As open interest will be published tomorrow, I'll wait to give an opinion with more conviction.

60 min - i've redrawn the channel (previous in blue).
Holding the 198.65 breakout was important.  Still leaves open this last leg up as 3rd wave. I'm not betting on it, but worth noting that once we close within that, the odds increase dramatically that we see a much steeper sell off.

I think if we can get above the 206 area early on, it should provide support for further upside.

Brazil is on holiday tomorrow  and thus removing some selling pressure.  Basically 4 effective days to fix vs Dec and little appetitive to roll to Mar.

Weekly - bearish shooting star candle and slow stochastic showing some divergence in overbought territory.  Last week's high was off the up trend line.
Long term (next 1 to 2 years) is up.
Medium term, still looking to retest 170/180, worst case 150.

Week Nov 8th - Wed Follow up

Well..we have gotten into the rectangle area and hitting extension targets nicely.
If the pattern plays out, we should get to at least 221.50.  key will be if we hold the 209.25 break.
My biggest concern with NY is London's failure to break the 2008 support point (now resistance) at 2096 (continuous chart).  In failing to do so, it also hit perfectly the bull pennant target of 2098.  Furthermore, today put in a near key reversal pattern off of spinning top candle pattern with slow stochastic overbought and hooking down.  London is ugly.

Note: Ice stocks fell twice by more than 25,000 in the last few days.  

60 min - Can't see us too far above 220 in the near term.

Ldn - if that 2098 holds, then that should be it for a while.

Week Nov 8th

Mkt did as probably everyone expected - rallied with dollar weakness (stupid sell off prior to it). I can't really find anything truly standout in the charts other than they point up.  One noteworthy observation (see weekly elliot wave chart) is that Thursdays high came within 50 pts (209.25) of August 97 high.  Above this there are not many technically significant points until the May 97 high of 318.00. Best technical guides going forward will be channels, elliot wave, chart patterns and Fibonacci extensions. As mentioned in the previous week, extensions point to a cluster of targets from 2.12 to 225, the highest cluster in the 224 to 226 area; that would also be within the original channel started off the 140 breakout. Bull flag patterns confirm those fibonacci extensions too. But, we need to break the current high and the August 97 high - very nice technical set up.  Given First Notice Day is coming on the 19th and roasters open interest position is low for the this time of the year, it seems very probable that we get a new high.

Other than being outright long, I think a great trade would be a nice H11 190/180 put spread financed by selling the 280 call. You won't have any weather to get too radical a spike and the market can't go straight up forever.  But, wait on that trade.

Weekly - eventually (next few months), I think we do see that 170 question mark, but for the time being still pointing up. Solid red horizontal line is the 209.75, Aug 97 high.

60 min - taking on a five wave move up - in "elliot" we may be in the 5th of a 3rd of a final 5th ! The final fifth being a big move up to challent the 318 high.  When?  could be a year or two. And the reason I think the put spread could be interesting soon.

Roaster - position actually reduced going into the final two weeks of dec fixations.
Note:  Once fixations end for Dec you will remove a huge amount of the pressure for hedge lifting on exporters and dealers.

Graph x - until this graph turns up decidedly, it still supports upside.

Graph is confirming upside prediction and no divergence yet.

Week Nov 1st Wednesday Update

Odds still favor the upside.  The tradeflow graph below shows the nice support that came in at the end driving the market above where most stops were elected.  If you aren't already long, then look to add with mkt above 197.60; or add to it. Stop can be below today's low 192.80 or breakout 190.45 (stop below 190.00). Market still within medium term channel and move up seems unfinished.  Give Euros rally, London should be up tomorrow and that should carry through to NY.

Tradeflow - today's low was right on two fibonacci targets.  Not as clean a pattern as before, but above 190.45 it's still corrective.

Week Nov 1st

Basically, everything hinges on the QEII announcement coming up on Wednesday. Given that, I'd buy any dip going into it with a stop below 193.80.  Far away, but I think you have to be long and therefore, you do not want to get stopped out on what will be volatile.  Brazilian Holiday on Tuesday (long 4 day weekend) and therefore there should be some reduced selling pressure.
Two strategies on the QEII.  1) If the mkt is below current level (204ish), you should be ready to buy. 2)  If it is well above, already near 210 or above, look to maybe sell a big move up, possibly selling some out of the money, expensive calls.

Since, this week may be less technically relevant, Ill focus on Open Interest. Open interest is considerably more bullish than last week.

First, 60 min graph.  Confluence of targets between 212/220; even more so at 225.
Friday held the 10 day moving average (blue MA on this graph). The whole pattern was near perfect ABC correction, possible a running flat; either way, it points up.

Roaster Open Interest - still in a precarious position, especially going into Christmas poorly covered and poorly price fixed.

Producers - you can see what was effectively hedge lifting (buying w/out hedging) and now there is more interest.  However, pattern suggests more upside as CenAm is still barely harvesting and Brazilians can wait a little more.

Proprietary graph - not perfect but has nicely captured general moves. Zero line cross suggests more upside.

Also proprietary and one of my favorite - still suggesting more upside, but bottoming and indicating an short-term end is nigh.

Warehouse Stocks - Record decline / record prices.

Week Oct 24th Wednesday Update

Mkt did rally several times getting up to 204.60, but has stalled a little.  Having said that, the pattern is corrective and am still looking at the possibility that this is an irregular (expanded) or running flat - two three wave corrections with a final five wave down (this is where we may be).  Because of this and the fact that we closed at the lower channel line, I am putting in stops @ 198.65 on some of the position and below 194.20. If the market moves farther than this, then I am back to the original correction targeting the 165/150 area. Note: Brazilian Real back to 172.10 and breaking through some short term resistance (need to watch this over the next few days - it may not get to the 160 target).

Tradeflow graph: post option pit market tested lower channel line and 62 % retracement.  As evident by the dominance of red bars, sellers were the aggressors over the last 2 hours of the market.  You could buy this with a stop only a few dozen pts away - very high reward/risk and decent probability that it will pay out.

Week Oct 24th

Quick summary

·        Oct 11^th – had expected mkt to fall, but did not expect it to recover above 180 and thus moved my corrective target to 195 from which I expected the market to correct back down again targeting 160/165.  It did not.

·        Oct 18^th – Was still expecting the move to 195 (bull pennant tgt), but again did not believe we would take out the new high.  It did. Taking the conservative sell (break below 182.95) would have kept you out of the short.

General:  I think the biggest lesson here is that if it walks like a duck, quacks like a duck, and looks like a duck, it must be a duck. That is, I was looking at the move off the 198 high as corrective, but I wanted it to take longer and be more complex (note to self: let the market determine its pattern and don’t try and project). The overall trend remains definitively up. That does not preclude a sharp correction, but for the time being the trend has resumed.  The only possibility would be an irregular flat; not impossible, but it seems this week will continue up. Several short and long term targets looking at the 210/215 area.  Friday took form of yet another bull pennant – this point to ard 215. In summary, I have discarded the correction in the near term and looking for at least 212. Invalidation of this would be below 194.90 (intraday should be enough).

Trade: Aggressive - buy on the open.  Slightly conservative - buy stop above 200.65 (see TradeFlow graph).  Stop @ 194.90.

Open Interest -  previous indicators turning bullish again. 

Graphs

60 Min - nice clean impulsive move up.  Had broken trend, but was nearly a textbook ABC correction where A = C.

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Tradeflow - nice visisble resistance at the close, but a move above that should set the stage for a nice next leg rally - buy stop above that resistance would work well.

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Weekly - was looking for that question at 160/165.  It still may come, but probably not until we see a good new high (215/220).   If the rally fails now, then Ill start looking at this as an irregular flat which which would bring us back to the 160 area.

Obviously lots of upside potential still.  This is either a 5th or the middle of a big III - both point up in the medium term. 

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