A Free Low-Risk Trade Idea…
As you know from recent articles, coffee is the top-performing commodity of 2014. Brazilian drought worries sent the luscious bean soaring from $1 a pound in November 2013 to just over $2 in early March.
But over the past few weeks, the commodity has cooled. In fact, coffee fell from $2.05 to $1.70 over a span of six trading days.
Take a look…
As you can see, the recent pullback in coffee was swift and unforgiving. Investors realized they had likely carried the commodity too high, too fast. The rush to collect profits sent coffee plunging in the second and third week of March.
But now the market is firming once again…
Ever since hitting an intraday low of $1.66 on March 24th, buyers have kept the commodity from bleeding lower. As a matter of fact, they managed to push coffee up to $1.81 last Friday.
What’s more, last week’s Commitment of Traders report from the CFTC reveal speculative investors are still incredibly bullish of coffee. In fact, the most recent data shows “managed money” has 51,614 long positions versus 7,128 short positions.
Add it all up and we have a solid low-risk buying opportunity…
You see, the recent uptick in prices provides a great reference point to get long this market once again. You can buy the commodity at current prices and set a stop loss just below the $1.66 low set last week. If coffee continues higher, you’re good to go.
On the other hand, if it reverses lower, your downside risk is very small.
What’s the best way to get long the coffee market?
Two of the best ways I know of are the iPath Pure Beta Coffee (CAFE) or the iPath DJ-UBS Coffee (JO). Both of these exchange traded funds offer a convenient means to profit from the rallying price of coffee. What’s more, there’s nothing complicated about CAFE or JO- they trade just like a stock.
Now remember…
This is purely a technical trade.
And when you make trades of this sort, you have to honor your plan. As a result, you’ll need to watch coffee prices carefully. If the commodity breaks below $1.65 a pound, it’s best to close any long positions in CAFE or JO.
Until Next Time,
Justin Bennett
Category: Coffee, Technical Analysis
