Coffee Traders' Forum - A Discussion about Coffee Futures Trading
Coffee Traders Discussion Forum
I believe everyone in the forum shares your frustrations with the market. However, there are green sprouts showing within the COT report imo.
The reasons for the lack of volatility, and so our frustrations, are several. Some of us have referred to the systemic slowdown in several markets of investment participation due to uncertainty originating from looming economic policies and circumstances in the US as well as throughout the world. In addition there are conditions within our market that have suppressed volatility. Spreads have become an ever increasing vehicle in the roll and have taken the place of leg lifting that once provided erratic moves during notice period. We see on the COT a great deal of activity in spreads as highlighted in red on your COT report that I borrowed. You point out that the May OI dropped 54.5k during the COT period. We can safely assume that an additional 35 to 40k reduction was made for the rest of the week with a minimal impact on outright volatility. On Friday, the total volume was 110,674 lots but 88,618 lots were spreads. Spreads however have their own volatility in both KC and RC and should be incorporated, imo, in every trading strategy. In looking at the COT however positive signs do exist I think.
Let’s forget the commercial sector. EFPs cloud their activities in the marketplace. We know that they trade spreads but the COT conceals this activity and is present as commercial buys and sales. But we know that this group buys weakness and sells strength. What I find optimistic is the possible longer term activity of other groups which are circled in green. Swap dealers, institutional entities, have added new longs. Managed money activity is impressive to me. I believe that new system fund selling is still taking place. There are 103 managed money funds on the sell side. It’s very possible that a few, who are not systems, covered. Thereby concealing the momentum activity of new selling. Also, managed money increased their long position which may or may not be longer term. The sellers were likely commercials, as we said, on strength, and we see liquidation by small traders who are likely short term and large traders who can be either.
Present conditions are such that the lack of volatility is inviting every sector, almost, to take advantage of any rally that takes place as we saw on Friday. Longs are too eager to take profits. We should remember this while trading and not look for a home run. Not yet. At the same time, the consumer sector is content to place bids and take advantage of “cheap” prices. Not much has changed for some time but we can day trade both ways and have longer term strategies as well. Nagual has provided short term suggestion that a dip is imminent related to FND activity. Wheatsoy has provided a longer term commentary related to the potential of a frost this winter. The Sep volatility premium continues to be higher than those of other months but implied volatility in general is low and bullish strategies can be structured at little cost. I plan to continue trading spreads in both markets and including CSOs, watch my option position and pick my spots for day trading. Not much else I can do. Can’t squeeze water from a stone. GT