Todays Lesson of the Day: Coffee Coffee typically tends to start a seasonal bottoming process before distributors begin buying ahead of anticipated demand in the upcoming cold winter months. This is the time to cover the best seasonal trade short position from May. It is also a time to look for a short-term trade opportunity on the long side. Traders can look to enter a new long position on or about August 18 and hold this position until about September 5. The trade usually ends right around Labor Day, but coffee prices can continue to head higher. This trade has worked 26 times in the last 40 years, for a success rate of 65.0%. After posting a gain every year from 1986 to 1997, this trade has had a spotty record of late, successful in just eight of the last 16 years. Coffee has increased in popularity on an international scale in the last few decades. Most consumption has been from the United States, parts of Europe, and Canada. Many Europeans have switched from tea to coffee and with the introduction in late 2005 of Starbucks coffee in Europe and in Asia. Demand is improving, especially for higher grade and quality coffee. With increasing global consumption habits, if there are threats of supply disruptions or production declines for higher grade coffee, the futures market can be prone to extreme price moves. One such move was earlier this year when coffee surged nearly 100% in about three months due to drought conditions in the major producing areas in Brazil. These conditions have not eased and production and quality are projected to suffer this year and possibly even beyond which should set a floor under coffee prices for some time to come. Outside of the futures market several choices exist to trade coffee’s seasonal move.PowerShares DB Agriculture (DBA) [an existing position in the ETF Portfolio] offers some exposure to coffee with approximately 12.47% of its assets being coffee futures. However, iPath DJ-UBS Coffee TR Sub-Idx ETN (JO) is a better alternative. Unlike an ETF, JO is an exchange-traded note that is designed to track the DJ-UBS Coffee Subindex Total Return which reflects the potential returns available through an unleveraged investment in futures contracts on coffee. JO has sufficient liquidity trading around 100,000 shares per day over the past three months with a market capitalization just under $100 million. A long position in JO could be considered on dips below $35.75. If established, a stop loss at $31.80 is suggested To access our swing trading course and receive additional stock information please subscribe at northstaractiveequitytrading
Posted on: Fri, 15 Aug 2014 23:11:59 +0000
Trending Topics
Recently Viewed Topics
© 2015