Coffee Bulls Struggle As ?Double-Top? Forms On Daily Charts

Today’s Spotlight Market
Large and small speculators remain net-long Coffee futures, but not in any meaningful way. The most recent Commitment of Traders report shows non-commercial and non-reportable traders holding a combined net-long position totaling just over 45,000 contracts for the week ending April 8th. This relatively small position is surprising given the strength of the price rise, as well as fundamentals that appear bullish for some time.

Some of the lack of participation may be tied to the upcoming harvest in Brazil, as well as a double-top technical formation that may be keeping more timid Coffee bulls on the sidelines until an upside breakout negates the bearish technical pattern. We note that Commercial traders have not been aggressive sellers in the futures market, as uncertainty as to the size of the Brazilian crop makes producers hesitant to lock-in prices should production totals fall short of estimates.??? ?

 

Fundamentals
Coffee futures have been an exciting bullish story so far in 2014, as the market turned from a potential surplus and prices hovering near multi-year lows to a raging bull market and a supply deficit this year. The catalyst for this turnaround was Mother Nature and her wrath towards the Coffee growing regions of Brazil. Drought conditions plagued the developing Coffee crop this season, causing irreversible damage early in the development stage. Analysts are now lowering their estimates for the size of the Brazilian crop from 60 million bags earlier in the season to as low as 45 million bags in the more pessimistic outlooks. However, with prices rallying over 90% since the start of the year, traders may become hesitant to become aggressively bullish now that prices are hovering near $2 per pound.? The first real estimate as to the size of the Brazilian Coffee crop will not occur until the harvest begins in May.

 

Technical Notes? -? View Today’s Chart
Looking at the daily chart for July Coffee, we notice what appears to be a double-top formation which gained some credence after the sharp price decline seen on Tuesday. There also appears to be a bearish divergence forming in the 14-day RSI. In order to confirm this bearish technical pattern we would need to see prices close below the 20-day moving average (currently near the 187.20 price level), and more importantly, see prices close on a weekly basis below recent lows at 167.95. A weekly close above 211.50 would invalidate the technical formation.?

MondayAP21

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