Update on a upsloping trendline (blue) which acts as resistance
On the 5 hour chart, we should have generated a sell signal.
I still remain short via puyt spread 1x2s, as frost is no longer an issue. It appears the market is still digesting this from last week and should correct lower IMHO as physical supplies out of Brazil remain steady.
Warehouse stocks in EU and US plenty as well.
Dont get me wrong, as shown in the blue channel, even if we have a correction lower, the blue trend channel might indicate a change in trend, however the frost damage is simply not there and in order to rally, this market would need breaking news like that.... without anything of that sort coming out, I see a correction lower before making new highs. Still, knowing coffee, I remain short with 1x2 calendar spreads, buying the downside 1 leg in one month and selling 2 lower puts in a month further back.
Curious as to whether you are still holding these? Also, wanted to ask you about spread tightening. In an earlier post you mentioned that spread tightening in other months were an indicator. Could you expand on how you use that. Thanks.
mjhillpp
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Yes, I still hold those, and they worked fine on friday. Also added some out of the money puts during the week.
I am curious to see if we test any other levels below.
In terms of spreads, future spreads help me gauge if rallies or sell offs are supply driven or of technical nature. If the market rallies and the front month get more expensive in relation to the back month that indiactes. In a substantial price rally, I want to see supply getting tighter, however sometimes we have the futures spreads indicate ample supplies, but markets make a new high. In that case I start being cautious. The same on bottoms. The market falls and at some point just starts to grind (LOL coffee joke). Then often times spreads are the first to become tight. This means the first month gain in value in relation to the back month. For coffee these divergences are great to look at. They also work nicely on cocoa, sugar, and energy products, but for energies I would look at the 6 month spread.
Look at the coffee Sep16/Dec16 future spread and take a look how it acted during the highs last week. You will notice that they sold off, indicating no tightness in supply at this moment. That for example was besides other technicals an indicator to stay with my position. Hope that helps, if not let me know if I am still unclear