Coffee Traders' Forum - A Discussion about Coffee Futures Trading
Coffee Traders Discussion Forum
Hi JK. There is a pattern that exists in the commercials. If we go back and see the commercial net changes in the COT and compare these changes to price changes, we can clearly see that the market will reverse when there is one way commercial activity. We can go back and compare drops in the market to commercial buying and see that the market will at some point go higher. This situation has been obvious for quite some time especially when commercials are buying. On the sell side commercials seem to be more cautious often but not always. Presently, the situation is that commercials have been selling abundantly as we have seen in the last few COT reports. Based on market behavior it appears that their selling is slowing down. Generally, commercials will ignore any factors like fundamentals, currency, macros or weather because a large percentage of their activity is options related. They are simply hedging delta. Managed money are quite different in their motivation.
In this COT report there were 56 funds that covered shorts. it appears that several of these funds were systems, or momentum or simply algos. They too are impervious to outside factors. They have programs to buy at a certain pace and for specific quantities. They don't seem to change this pattern and they are persistent. They will only reverse if the market reverses substantially. For now they are the main drivers to higher prices. You ask about next week and my response is that we can count on the same pattern that we have been seeing, systems and shorts buying and longs taking their profits. But for this week, we also are continuing the roll and have option expiration on Friday. Hopefully we will have volatility that will provide two way positioning. As far as longer term direction, I'm generally bullish and open to corrections.