The Hightower Group has reported that “a record high Brazilian crop continues to weigh on the market.” This, among other factors such as a strong US dollar and weak Brazilian currency have continued to keep the pressure on July coffee prices. Since my last article, July coffee prices have rallied only to face failure at the 126 resistance area. Keep in mind that the last 5 of 7 trading days have been negative, with momentum and volume, not a great sign for the bull camp. This morning we are now seeing some US dollar weakness, while coffee prices are still trading on the negative side. Expect some serious volatility as the Trump- Iran situation continues to bring uncertainty to many of the commodity markets. Wide swings will likely follow any outcome. The next area of support on the horizon will be the 117 level. If this area is violated, expect a correction (possibly back to the 122 level again), and engage in a short position at that time. Traders can 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