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Have The Soft Commodities Bottomed?

Have The Soft Commodities Bottomed?

18 August 2013

ANALYSIS - Cotton futures continued their bullish momentum settling last Friday at 88.93 and going out this Friday at 93.40 up 450 points for the week, writes Michael Seery of Seery Futures.

Cotton futures are up over 800 points in the last 2 weeks trading far above their 20 and 100 day moving average hitting a 1 ½ year high this Friday afternoon. The USDA predicted 13.052 million bales in the crop report which came out last Monday, but analysts are figuring that the crop is going to be shrinking as harvest starts to begin due to the fact of extremely hot weather in Texas and the crop is way behind in some of the other Southern states due to the wetness and cool temperatures.

The trend is your friend in commodities and as I wrote in last Friday's blog you should be long this market and I still believe prices could head higher but make sure you do place your stop loss at the 10 day low which is a good distance away but will be tightening up in a couple of days as the commodity markets as a whole have been rallying pretty significantly in recent weeks.

The great thing about the cotton contract is the fact that it is very large and if you bought this when prices hit the 4 week high at 87 the 10 day low at the time was 84.50 so you are only risking around $1200 per contract and if you're still in this trade you are up over 600 points is now $3,000 per contract and in my opinion whenever there is a low-risk situation with a high reward possibility you should always take that trade regardless of your opinion.

TREND: HIGHER

CHART STRUCTURE: POOR

Coffee Futures

Coffee futures are trading right at their 20 day moving average but still below the 100 day settling last Friday at 125.60 down slightly for the week with an incredibly tight trading range as the current crop in Central America is developing very well with very little new fundamental news to dictate where short-term prices are headed. Coffee has been going sideways for several weeks now and at this point I'm still advising traders to sit on the sideline because there really is no trend, however if I had a gun to my head I would think that coffee prices will start to rally with all the other soft commodities and commodities in general due to the fact that the giant bear market might be over at this time. Coffee futures are still right at 3 year lows and have been one of the weaker commodities in recent weeks as many markets have been hitting new monthly highs, but with ample surplus and a lack of demand at this point coffee prices in my opinion probably will go sideways for at least several more weeks.

TREND: SIDEWAYS

CHART STRUCTURE: EXCELLENT

Sugar Futures

Sugar futures are trading above their 20 but below their 100 day moving average which stands at 17.18 settling last Friday at 16.98 going out this Friday right around 16.94 with the next major resistance at 17.50 which would be 3 ½ month highs and I have been recommending a long position in sugar due to the fact that it has excellent chart structure allowing you to risk a small amount with the 10 day low which still stands at 16.50 risking around $550 per contract. The weather down in Brazil has been pretty poor which is been hampering the sugar crop and that is why you seen a rally off of 3 year lows and I still believe prices could head higher due to the fact that crude oil prices right near yearly highs once again which usually helps out sugar to the upside but the great thing here is you can risk small amount my opinion due to the fact of excellent chart structure and this trade if that works could continue for quite some time especially if weather problems occur what I always like trades when the risk reward scenario is in your favor dramatically and in this case I believe it is.

TREND: HIGHER

CHART STRUCTURE: EXCELLENT

Cocoa Futures

Cocoa futures for the September contract are above their 20 and 100 day moving average hitting 9 month highs after settling last Friday at 24.63 going out up 30 points for the trading week as dry weather in West Africa has been damaging the crop and demand is starting to improve as Europe has gotten out of recession levels with a positive GDP number this week which is sparking the possibility of renewed demand for many of the soft commodities. Cocoa futures does not have very good chart structure at this time because prices have exploded to the upside in the last couple of weeks and consolidating in the last several days, however the trend is your friend in the commodity markets and if you're looking at a bullish position in cocoa I would be looking at either a futures contract or bull call spreads to the upside which minimizes your risk to what the premium costs. The higher cocoa prices go the more volatile this commodity becomes and I've seen days in cocoa that have been up or down 200 points and I do believe prices could move higher & you will start to see some terrific volatility and that's what traders like to see.

TREND: HIGHER

CHART STRUCTURE: POOR

 

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