The Hightower Group has reported that “the increase in open interest on the recent recovery bounce is a surprise and somewhat supportive.” Coffee prices have in fact been holding support up until this morning, a massive down-day is in progress. Coffee appears to be heading down to challenge the 116 level, or last corrective low of 11635 from May 15 of this year. Coffee prices will need solid supply issues from Brazil to hold support in this area.

There has been chatter about colder temps in key growing areas of Brazil, and that has helped to support, but now all eyes are on the 116 level. Keep in mind that the US dollar continues to strengthen, while the Brazilian currency seems to struggle, adding pressure to coffee prices. If the 116 area is violated, a race down to 115 is very likely. Expect coffee prices to head lower for the rest of the week (possibly back to the 116 level again). Traders should position themselves for a long-term downward continuation using long put options that allow exposure and leverage, while managing risk effectively. In addition, buy equal-numbered quantities of options, so that you can remove half of the position when the option value doubles (thus eliminating the premium risk). 

Coffee Jul ’18 Daily Chart

Coffee Jul '18 Daily Chart

Adam Tuiaana

Adam grew up in Chicago and was always fascinated by the fast-paced action found in the futures market hub there. He began participating in the financial markets by trading stocks in 1997 and began his career as a trading consultant with RJO Futures in March of 2009. At RJO, he specializes in risk management and disciplined trading plans, and is focused on educating clients with one-on-one consulting and training. Adam believes the best approach to trading is to take a measured and objective approach and let the markets guide your decisions.