Coffee Traders' Forum - A Discussion about Coffee Futures Trading
Coffee Traders Discussion Forum
Reporting period : 2/21/18 through 2/27/2018.
Trading range : 11855 - 12280.
Settlement : 12110 (+1.40).
Total OI change : +8,091.
Seems NY coffee (arabica)is getting comfortable in the recent trading range. In this report we stretched towards the low end of the range , making a low of 11855. As has been the case each time we probed the low end of the trading range, the result was brief and a bounce followed. The high for the period took place the next day, 12280. I have mentioned in prior COT reports that the 1.20-1.18 level has been key for spot* coffee and we see here that this remains the case.
Now, looking at the various sectors, IMO, shows some surprise. First, if we start with the commercial sector. We see commercial shorts were quite active, adding 7,324 new future sales. There have been murmurs of origin selling , particularly as noted by Admiral. Tango even made note of the possible presence of origin selling it the farther forward months earlier last week. Also, remember following the action on Monday 2/26, the OI report showed an unexpected build. All of these things likely have contributed to what surprised me on the commercial short side.
Commercial longs were buyers (+1,358) and more so when we look at the supplemental (+3,558). Not surprising to see the commercial longs buying , particularly in the vicinity of 1.20 and below. The crossing of the 1.20 strike has likely played a roll within the commercial sector as a whole .
Looking at the non commercial side, we have further surprise IMO. First, the all important large fund short. We see they decreased gross net short from last period (-2,052) but still sit with a very large gross short. The net change was greater, as we see large fund longs were buying new (+3,147). Net change +5,199 leaving a net short of -53,355 which is still within 10% of record levels. Recall the bounce off the lows on 2/22. The following OI reports indicated short covering (which we do see) and new buying (also seen here). However, the build in OI on 2/26 was difficult to decipher and 2/27 showed basically an unchanged OI. Based on the market activity, unchanged OI would indicate new buying and long liquidation. So, let's look to where these changes may have occurred. Managed money shows modest future changes but large traders we see were active. The new buying does show up here as large trader longs bought +2,507 new . Shorts, also buying, covered 2,230 contracts. Looking at small traders, the net change doesn't tell us much. However, these "non-reportables" provide the long liquidation (-1,079) we expected out of the 2/22-2/23 bounce , agreeing with the changes in OI that we saw reported on 2/26 (for 2/23). Shorts, also buying, as 1,041 open shorts were covered.
So what can we expect from here??? Well, the first 2 days of our current period reporting period saw steady action. Thursday we saw an impressive climb, in spite of what seemed like never-ending iceberg selling. Recall, 3,300+ contracts traded 13290-12400. We saw OI continue to climb. Spreads have become very active and perhaps clouding the overall changes we are seeing in some segments of the market. Thursday (3/1) had all the earmarks of short-covering and long liquidation that we have become accustomed to on market spikes. Remember, we saw intense actions on both sides as the market broke 12300, particularly in the area of 12400. This signifies about 5 cents off the recent lows, a parameter we have often discussed as a potential trigger for certain groups. It would make sense for some of the funds to be covering, while our resident LONGS begin to liquidate. Friday , we saw the mirror image of Thursday , as the market weakened in basically the same trading range from Thursday. The notable difference, volume was much lighter on Friday. Tomorrow's OI report should be interesting.
It is hard to anticipate anything different then what we have seen over the last few months. Something that has gotten my attention has been the very depressed volatility within the market. At the risk of sounding redundant, I will not go into too much detail -- I think this, along with the near record fund short, are two potentially "reactionary elements". Volatility has returned to the macro environment and we see US equities again throwing some fear in the air. The trigger this time, the Presidents tariffs to the steel and aluminum industry. NAFTA remains in the spotlight and wit all of this comes the fear of a trade war erupting . We should be very mindful of the US$ and some of the other key currencies. Today is the Italian election and some pollsters predicted that former prime minister Silvio Berlusconi ( and his far-right allies ) would emerge as the largest bloc in parliament, but fall short of a majority. We all know how well the pollsters seem to be, so let's wait and see. On Thursday , we have the ECB announcement following this weeks Central bank meeting. US employment data on Friday. A busy week ahead .