Coffee Traders' Forum - A Discussion about Coffee Futures Trading
Coffee Traders Discussion Forum
In my view, the systems funds reversed when the market traded up to the 123.50 area. It seems to be validated by the OI negative change on 12/18 as systems covered their shorts and longs liquidated. The days following however the OI showed no change. If the thinking that systems have been covering their shorts is correct, then there is new selling in the market. On the 21st, the OI was up by approximately 2,600 lots, the same number as the EFS posted. It it were not for the EFS the OI would again be a flat change, signifying old vs. new, or possibly more systems short covering and new selling by other funds, specs or even commercials. On Friday however, commercials seemed to have been good buyers at the lows. Systems should be sellers around the 119.00 area if we remain true to the rule that they reverse 5 cent from the high or low. The recent high was 124.05.
It is worth a reminder that neither commercials nor systems are motivated by any events other than value and momentum. This has been the case for quite some time that fundamentals, currency, weather or world events do not motivate these two sectors. The COT report shows good activity by other sectors besides the usual two however. Large traders were good buyers and institutional entities liquidated some longs. As a result the OI and market behavior has been difficult to read which is fine as long as we go with flow and follow the techs. The Bloomberg index fund will be rebalancing early next month but it’s very possible that other funds could be rebalancing as well, maybe even now. I am hoping that the windfall tax savings by corporations and large investors will create some commodity investments but so far it is only equities that have been benefiting.