« back to blog

09-08-20 Armenia Coffee Report

Good morning,

On Friday, we had made new highs for the move here at 135+ in Dec. All of the technicals we follow were raving bullish, with the exception of the 9 period RSI which is showing the market technically overbought at about 77, but as we know that number can go at least 10 points higher and has in very bullish markets.

We were expecting the COT issued tonight to show that the funds added about 6-8,000 lots additional longs as the market went from 122.95 on Aug 25 to 13140 on Sept 1, and of course they’ve likely added some more today after a bit of consolidation on Wed and Thurs. That would make the funds about 42,000+ net long or longer. It’s getting sizable, but no record yet. In fact, they got as short as about 55K lots on the way to the lows, recently. We were spot on – funds bought 7553 lots to wind up 42584 lots long per the COT for Sept 1 issued Friday.

With a close at these levels as I see the market, the next target would be the 14260 corrective high just before the market collapsed and made the move to the low. If it gets past that the next level is the Dec high at 14875 then the mid 150s low 160’s where the contract was when it started out 2 years ago.

What’s behind this market that seemingly has ample supply and Covid related reductions in demand?

  • A small technical window where the certified stocks have fallen about 1 million bags since March and now are just under 1.2 million bags. Narrowing switches. Dec 20/Dec 21 currently trading at 3.30 discourages anyone to carry coffee,
  • Lack of aggressive mild sales even into the rally, though there may be some washed and semi washed Brazils coming, they’re over the hill at the moment if they are the calvary. As one trader explained to me folks are a bit hesitant to buy washed and semi-washed Brazils knowing naturals are at least 10 cents lower and that’s the competition for anything that doesn’t pass. You have to be sure.
  • A very weak dollar even against currencies like the Brazilian Real, which hit a high 2/3 weeks ago around 5.65 but was 5.428 on Monday and is 5.288 as I write this, erodes some of the C based gains for origin. Spec inflation plays are in effect. Those traders look for commodities that have been down believing they are the next ones up. Fed’s recent statement that they are more concerned with unemployment than inflation.

They way this market is set up now, bulls would really rather see a bit more consolidation before any attempts at the upper numbers I have above. Support in the mid 120’s at the moment would need to be pierced to give them any concern at all as long as we don’t close today below 12900 would be a reversal close after making the new high (I would be very surprised to see that happen).

We wrote the above on Friday and come in to find the market 600 points lower. What’s going on?

It’s probably just that the funds weren’t buyers this morning and we ran some technical points that gave the recent longs a reason to head for the exits. Relatively speaking the dollar is strong today voiding point #3 above and it’s making a difference. The Real is out to 5.38 as a result. Risk off plays like falling Dow and S&P futures. We quickly ran through the 5 day moving average sitting about 131 key support lies around 12250 at this time. A move to 12525 would give back the entirety of last week’s gains.

Technically the market has, with today’s early trading, consolidated in a short period bringing the 9 period RSI down to 59.67 as we write this, down from last week’s high around 77. Trading like we have this morning is scary, but it’s only one day. Tomorrow will be important does the market hold what it needs to in this first real challenge of the bull run, or will it do what we did in December and April, give back hard won gains as quickly as they were obtained?

Its been a good time to look at booking some coffee for 2021. Into the rally differentials have improved somewhat and if the market does choose to lose much of these gains that probably won’t last.

Please have a look at the offer list that accompanies this posting and see if there’s anything that tickles your fancy – we’d be happy to send you samples.

All the best,
The Armenia Team